INSIDE INVESTOR: Where to for the property market?

Australian house prices are among the most expensive in the world but those predicting a calamity must first consider several fundamental truths.

So the world didn’t end on December 21 … as it was supposed to.
Apparently the Mayan Indians booked the date yonks ago, set it in stone so to speak. My theory is they simply ran out of wall and couldn’t get a decent tradie in to finish the job – or even turn up to give a quote.

For the past four years, there have been similar takes on our property market. Economic soothsayers, divining sticks in hand, have predicted an almighty collapse in Australian property prices. So far, nothing.

It is true that our property is among the most expensive in the world. And it also is true that Australia was about the only developed country that did not suffer a property downturn during the financial crisis. It is also true that our housing is at the limits of affordability.

But don’t bet the house on a property market collapse any time soon, for the doomsayers overlook a couple of fundamental truths. To start, supply and demand are pretty much in balance across the nation. Sydney has a shortage, Melbourne may be a little oversupplied. They are the two prime forces that determine supply and demand.

The property Armageddon crew also overlook the inconvenient fact that we have low unemployment, meaning most Australians who have committed to mortgages can still repay them. And our economy, unlike the rest of the developed world, has been ticking along at quite a respectable rate.

Then there is the issue of affordability. Analysts love to track house prices as a whole over a 20 or even 30-year period and compare it to the growth in annual incomes during the same time. Real estate prices have blitzed incomes, they deduce. Therefore, less affordable.

But that is incorrect. A major reason for the dramatic lift in housing prices is that interest rates have dropped like a stone since those times. And finance is much easier to obtain. Prior to 1983 and financial deregulation, it was rationed. And anyone with a mortgage during the early 1990s will remember the horror stretch when interest rates were heading towards 20 per cent.

The property market, after edging lower in the past few years, is seeing early signs of life again. And with interest rates at record lows, it is sure to get another kick along.

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