Issue 12 | Thursday 17 June 2021 | How Long Will Prices Keep Increasing?
Hi, Andrew Bell here and didn’t we all get a taste of winter over the last week, which is always exacerbated when there are crystal clear blue skies like we have been experiencing here on the Gold Coast.
There has been a lot of feedback in relation to all the initiatives affecting the real estate market that came out of the 2021-22 Federal Budget, and of course the inevitable question of what that means for real estate prices.
It is a really difficult question to answer. We know the housing market has been driven over the last 8 or so months by record low interest rates, an easing of the eligibility requirements to get finance, and of course by some of the Government incentives.
I think what is going to be crucial is housing finance. If you look at all the variables that affect the real estate market, such as GDP, it is a bright green light. Look at unemployment and it is also a green light. Currently, housing affordability is still healthy, but that will change if we don’t get wages growth, and, most importantly, if interest rates do rise. Whilst the Reserve Bank’s official interest rates are still at record low settings, we are already seeing how the market is independently factoring in interest rate rises, and indeed some banks are already increasing interest rates. This will be something to watch closely. Add to that the concerns that have been more openly expressed by economists and others about the impact of rising real estate prices, and there is a real possibility that regulators will tighten lending criteria.
There is a direct relationship between housing finance and the movement in housing prices. Currently, that relationship suggests that prices are going to continue to rise for at least the next six months.
What is a real sleeper at the moment, and what will probably be the trigger of some regulatory control over lending, is inflation. There are clear inflationary trends surfacing now and we have always known that the Reserve Bank has a desire to keep inflation between 2 to 3 per cent. As soon as it starts to move into that range and through it, they will want to jump very quickly on controlling those pressures. Real estate is a huge contributor to inflation, and so looking just a little forward that could be the big decider about how much longer real estate prices will continue to rise.
The Federal Budget measures I talked about in my last eNewsletter are also adding further inflationary risks to housing prices, and so whilst they are great measures to support the real estate market, they could also play a part in bringing forward the very measures that will bring price growth to an end, or at least slow it significantly. The reality is that we can’t sustain the type of price growth we have experienced for the past 8 or so months indefinitely. It is somewhat of a catch-up from some of the corrections post GFC, but you can’t be getting 30 – 40 per cent increases per annum year after year. For those who own property this has been a wonderful period of time, but for those who are thinking about selling, don’t be fooled into thinking that prices just keep rising, and the longer you hold a property the more it is worth. The property market has always gone in cycles and the smartest person in property knows when to buy and when to sell.
My answer to the question of “how long will prices keep increasing?”, is that whilst I have a lot of experience over my 40+ years in the industry, that experience only tells me that no one on this planet knows the answer to that question, but there are signs that suggest we have enjoyed a wonderful run and that this run can’t keep being duplicated, so make the best of it right now.
This cold snap of weather is also a timely reminder that there are many Australians and in fact higher numbers than ever, who are sleeping in the streets. We look at these fellow Australians and wonder how they got into that position. So often it is women as a result of domestic violence, there are the unemployed, there are those with mental health, and there are people with addiction. However, they are all fellow Australians who by preference would not be sleeping on the street in the bitterly cold, and so the CEO Sleepout is a great way for each of us to be able to help support some housing and warm food in this cold period of time of the year. I am once again participating in the CEO Sleepout tonight and if you are able to make a small donation you can do so here. Every dollar counts.
Stay warm, stay safe, and remember how fortunate we all are to live in this amazing country.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group