I’ve always been a bit sceptical of economists, but I’ve completely given up listening to them now.
Imagine if you turned up to work every day and got everything wrong, but that would be ok! If you asked your lawyer for advice and then you got sued by someone for heeding that advice, would you ask that same lawyer to defend you? If your accountant gave you tax advice, then the ATO came down on you with massive penalties and revised your tax bill because of that shoddy advice, would you continue using that accountant?
And yet with economists, they consistently get it wrong – and not by immaterial degrees – yet we all tune in again to hear them say “ok so the last few months didn’t pan out as we expected, but let me tell you what’s going to happen next”.
After COVID hit, the forecast unemployment rate was around 17%, house prices were going to drop anywhere between 10 and 30%. I can’t see too many people with half an understanding of economics saying anything bad about JobKeeper – although there has definitely been some waste (Gerry Harvey copping it on that front!), similar to K-Rudd’s $900 cheques when the GFC was hitting (which was also slammed as waste by many), it was outstandingly effective at saving us from a 1929-30’s Depression repeat.
But who predicted the meteoric rises that we’ve been seeing over the last 12 months? Almost nobody (but Christopher Joye is always worth paying attention to, e.g. this AFR piece from January).
Even in Melbourne, the lockdown capital of Australia where droves are leaving to move to our sunny beaches in SEQ, property prices are still surging. Sydney is [once again] going beyond ballistic, I genuinely don’t understand how 90% of their population affords to live there (seriously, if you earn the Australian median wage of $60,000, or less – and your job is in the city or eastern suburbs – where do you actually live in Sydney and how do you afford to eat??).
Here in SEQ, every week we hear about yet more unbelievable suburb price records; 1950’s knock-downs in suburbs that have always been normal middle-ring suburbs going past the $1m mark, while the top-end of the market is flying – it used to be rare for anything in Brisbane to sell for more than $5m, but now there’s plenty selling for far more than that.
Yields on commercial & industrial properties keep going lower and lower too (which equals higher values for the same rental income). The wall of investment capital is hitting hard, with yields often heading south of 5%, some have even been in the 3’s. Those of us with memories of the GFC [and other more grey-haired folk than me will recant older stories] still clearly remember what happens when yields push up… Simple math: if you buy at a 4% yield and the market pushes back up to 5% (after interest rates go up a bit), your property has just dropped 25% of its value!
Will it continue? If I’m going to tell you not to listen to qualified and experienced economists who spend their entire days working through all of the data, then I can’t really expect you to listen to me (nor do I have much confidence in my own forecasting anymore, given what’s happened during 2020-21), BUT, as long as:
- interest rates stay at this ultra-low level,
- unemployment and business failures don’t shoot up for some reason (e.g. extended lockdowns without sufficient government financial support),
- we don’t have another shock event such as a GFC,
then there’s a pretty good chance that the upward trend in housing prices will continue for the foreseeable future. There’s always the niggling logic in your head that says “but there has to be a ceiling to affordability” – yet that doesn’t seem to apply in Sydney and, heck, if a $1,000,000 mortgage only costs $20,000 a year in interest, then who cares if I’m up to my neck in debt – let’s party like it’s 2006, right?!
Which does often spark the question – what about when rates go up again? Good question. Everyone is talking about inflation (globally and locally) and central banks really do need to build in a bit of buffer again (because with official rates at zero, if we have another economic shock then they either have to go negative or print yet more money and rack up yet more government debt).
My personal feeling is that I don’t think they’ll be able to push rates up too much – a lot of borrowers will be in pain if interest rates move up to 5% (which historically is still very cheap), so there’s probably a good chance that if rates moved up to just 4%, the resulting reduction in consumer spending would hurt the economy too much, which would put a ceiling on rates.
So what’s my long-term forecast?
Stuffed if I know – and the reality is that your opinion or the next person’s is probably as useless as mine too.
The truth can be harsh!
Thinking of buying? We have 2 recommendations:
- Use a Buyer’s Agent – this is a relatively new concept in Australia (well actually they’ve been around for ages, but still not commonly used), but we can certainly say that our clients that use them are having far greater success getting a property under contract versus those going it alone. The reality is that a lot of properties aren’t even hitting the market, because selling agents are either going to known buyers or buyer’s agents, getting a contract immediately without having to bother listing online. If you want the name & number of a good buyer’s agent, just ask us.
- Be prepared for your finance application – “pre-approvals” are usually pretty useless to be honest, but you should at very least talk to Anthony before you even think about signing a contract – get the numbers checked, put the necessary information together that will be needed for an application – 14 day finance clauses are just not enough time anymore unless you have a very simple financial situation.
