With everything that has been happening in the market some people have been saying that the property market is going to crash.
The reality is that yes, some properties will fall and some housing markets will struggle.
Yes, interest rates have been going up and will continue to go up in an attempt to curb inflation. Unfortunately that will create some stress upon some homeowners.
But, no, the housing market will not crash.
Here are 8 reasons why the property market won’t crash.
1- The Average Australian is Wealthier than Ever
One of the silver linings of the COVID-19 pandemic for many Australians has been the opportunity to shore up their household finances. Due to the lack of opportunities to spend money over the last two years, average Australians have been able to save more money. In fact, households have saved an average of 17.2 per cent of their income. In dollar terms, households have put away about $260 billion in savings.
Furthermore, homeowners have 30% more equity in their homes compared to two years ago.
2. No Sign of Mortgage Stress
The percentage of borrowers in “trouble” is low, in fact, half of all homeowners have no mortgage. When Covid first struck fear spread that the property market would come crashing down due to the pandemic and lockdowns. They feared that many Australians would not be able to pay their mortgages and default on their loans, but that was not the case.
3. Banks are Conservative with Stress
Back in Oct 2021 APRA put some measures in place to ensure borrowers could service their loans if interest rates were to rise. In a letter to authorised deposit-taking institutions (ADIs), APRA told lenders it expected they would assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate.
4. Rising Interest Rates Didn’t make the Market Fall in the Past
One just has to go to the past for answers and there are plenty of examples over the last 30 years where Australian housing prices have actually risen at the same time that interest rates were rising (see 2000-2008).
Australian property values have never crashed because of rising interest rates. There have been four instances in the past 30 years where the RBA has implemented an interest-rate-hiking cycle:
August 1994 to December 1994 – Cash rate up 275 basis points.
November 1999 to August 2000 – Cash rate up 250 basis points.
May 2002 to March 2008 – Cash rate up 300 basis points.
October 2009 to November 2010 – Cash rate up 175 basis points.
5. Critical Supply Shortage Ahead
As international borders reopen migration will recover and this will create a demand and a supply shortage ahead.
This is especially the case when migration recovers and the demand for housing increases leading to increased prices.
6. So-Called “Experts” Routinely Get it Wrong
Many experts who have stated that the property market will crash in 2023 are the same people who have gotten “doomsday” predictions wrong multiple times in the past such as Debt Bomb.
You just need to go back to a couple of years ago when these doomsayers predicted a 30% crash in the property market and boy were they wrong; the reverse happened.
7. Australia’s Economy is Strong
Part of the reason we are experiencing inflation is that the Australian economy is doing well.
The graph below shows RBA’s latest forecast for our economic growth.
RBA has belief in our future job and wage growth. Proof can be seen in our unemployment statistics for June 2022:
-unemployment rate decreased to 3.5%.
-unemployment rate was 1.7 pts below March 2020.
-unemployed people decreased by 54,300 to 493,900.
-unemployed people was 225,500 lower than March 2020.
-youth unemployment rate decreased to 7.9%.
-youth unemployment rate was 3.7 pts lower than March 2020
8. We are on the Verge of a Rental Crisis
Rental growth has strengthened with vacancy rates at the lowest it’s ever been.
As residential vacancy rates plummet we have seen rents hit record highs. The figures and points above indicate why the property market won’t crash and illustrate how solid our housing market actually is. I also want to remind you that the property market is still performing strongly, and that property is a long-term investment. | ||
Let us know if you have any questions!
If you’d like to chat about how you can get started with property investing or simply how to build a path to financial security and success from where you are right now…
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Growing up in a socio-economic housing estate, Joseph was determined to create a better future. Even as a young boy, he committed himself to a goal of achieving success.
Over the past decade, Joseph has dedicated himself to personal development and wealth creation, resulting in the establishment of a multi-million-dollar property portfolio. He has achieved all this while raising a family of six children and maintaining a strong understanding of the need for a balanced lifestyle.
Joseph passionately believes that anyone can become financially independent and secure regardless of their background and starting point. He is dedicated to guiding others on the path to building their own property investment portfolio.