Episode Details

Can property prices really keep rising considering where they are today?

And how much are property prices likely to fall once this cycle comes to an end?

These are some of the questions Brett Warren and I are going to discuss in today's podcast

To do this we are going to look back at history and see what we can learn from the past 50 years of economic and property price changes and what has driven them to help give you some clarity on what's ahead for our property markets and the value of your and my home.

What History Tells Us About What's Coming

It's interesting how the narrative in the media has changed – only a few months ago it was about a booming property market and now the media is full of questions about how long this boom can last and how far property values are going to fall once it's over.

Can property prices really keep rising?

The simple answer is yes property values can keep rising, but not everywhere and not to the same extent as they have over the last year.

What's going to happen to property prices in the short term? Will they fall after this boom ends?

While property prices are notoriously difficult to forecast, in my mind it's hard to see the same size downturn befalling the current market, at least in the near-term.

Let's look back and see what we can learn if I look back on close to 5 decades of investing, and see what may be ahead.

• In 1970, the median Sydney house price was $18,700
• The median price in Perth was a relatively $17,500
• In Melbourne, median price was just $12,800.
• In 1971, house prices were $11,900 in Adelaide
• They were $18,000 in Canberra
• They were $11,875 in Hobart
• The earliest data for Brisbane is for 1973, when the median house price was $17,500.
• In 1965, the unemployment rate was 1.3 percent
• For the period from 1964 to 1971, the unemployment rate was 1.9 percent or lower.
• In both 1974 and 1975, annual inflation was over 15 percent
• From 1973 to 1983, inflation averaged 11 per cent per annum.
• So why has inflation been so low for the last decade or more?
  • Firstly, unionised labour is now a fraction of what it used to be.
  • Second, the world has been investing heavily in technology and in particular, automation for the last decade.
  • Thirdly, globalization. Open trade has also led to higher rates of immigration.
  • Four, immigration. There is little doubt that a high level of immigration, especially when a large proportion of the migrant influx is looking for work, limits domestic wage growth.
  • Five, Long Covid #1. We see a repeat of 2021, being that we remain constrained due to new Covid mutations. We spend less when we are locked down

What about affordability?

There are a number of affordability measures used and most of them are not very useful

1. Ratio of dwelling values to income – this is the most widely used and internationally comparable method
2. The number of years it takes to save a 20% deposit
3. The proportion of household income required to service a new mortgage
4. The proportion of household income required to pay rent

So, on the one hand, it is difficult to get into the property market at present, and I know I'm going to annoy some people, but it's not just an issue of affordability – it's also an issue of expectations. Some young millennials are expecting to start their property journey in the type of house it took their parents to 30 or 40 years to acquire

What about mortgage stress?

In my mind, the best measure of mortgage stress is home loan arrears or home loan defaults. Currently, home loan arrears (those more than 30 days late) are only 1.14%

Is there really a debt bomb waiting to blow up?

No.

1. We have a stable banking system.
2. We