Australian Property Prices are Rising. Despite predictions of a property market crash due to rising interest rates, Australian property prices continue to hit all-time highs. This blog dives into the complex factors driving the rise, from supply and demand dynamics to the effects of inflation and migration.
I'm pretty sure some dude on Twitter said that if interest rates go up, property prices are going to fall and we're going to have some sort of property crash in 2023, 2024, or 2025.
Yet, we've got property prices at all-time highs and I'm here to make sense of it all.
It's safe to say the last couple of years have been absolutely wild when it comes to Australian house prices and people trying to make sense of it.
You've got commentators out here saying: No, markets are supposed to go down.
You've also got other economists suggesting that: Interest rates are so low that they need to get to like 10 or 11% before the inflation target is met of 2 to 3%.
Then there are people like me, who might look like an accountant but definitely aren't. I’m some guy on YouTube who runs Australia's largest real estate channel and have made some statements on this platform that, while controversial, have proven to be quite accurate.
In fact, 4 years ago I made a video on my YouTube channel in which I put myself out there suggesting that: prices will go much much higher in Australia's largest property boom. This was during a time where lockdowns had just started and there was mass fear—that would have been the best time to buy and I'm sure you'd sit there and say: “Well yeah, I mean hindsight's great, it would have been amazing if I could buy back then.”
Now what we're trying to do is make the decision for the next part of this cycle.
I don't think we're near the top and I'm going to show you exactly why.
Here is the total value of residential dwellings.
The total value of residential dwellings in Australia surged by $209.4 billion this quarter and it's reached an all-time high of $10.7 trillion, representing a 2% quarterly increase and a 9% year-on-year rise.
National home prices have rebounded from the 2022/2023 downturn caused by interest rate pressures, reaching new record highs.
What we can see is the total value of dwelling stock in Australia and how it's continued to move higher and higher.
This is a really nice graph because all it does is one thing: It goes up to the left.
Now if you were to extend this out, (and this is only till 2019) for the last 50 years, you're pretty much seeing the exact same thing.
What's important is what you can take away from a graph like this.
This is a period of 5 years. Now this has been very volatile.
It's almost like the distractions are away. You don't care about all the headlines that you got during this time.
If you zoom out even further and look at the last 10, 15, 20, or 50 years, it's pretty much the same story when it comes to Australian real estate.
Now, am I of the belief that Australian real estate will continue going higher and higher forever?
Sort of…and I’ll tell you why it's sort of.
My mind is telling me: there is no way that could actually happen because housing is really unaffordable. But if you were to open up articles from 30 years ago, you pretty much had the same headlines and imagine telling those folks that: “Hey, median house prices here are about $150,000, but they're going to be worth about $1.5 million in the next 20 to 30 years.”
In response, they would have said: “It's unaffordable, how is anyone going to afford that?”
Why? It's because we've got inflation and we've got more money coming into the system, which means more people make more money.
Unfortunately, it's not that our houses are so much better now than they were back then. In fact, I'd argue they're probably worse now, especially when you see these massive unit blocks just having all these issues. It's more so the fact that: our dollar is losing its value and over that time, we've pretty much lost like 90%, if not more, of that purchasing power.
This is why it feels like we make so much more, yet we afford a lot less.
I know it feels like it hits a nerve because it's true. All of us are going through the exact same thing.
Now the next thing I want to focus on is approvals and supply.
As we know, for prices to go up or down, we need supply and demand.
When we look at something like this, it explains what's been happening over the last couple of years.
New building approvals dropped by 0.3% month-on-month but grew by 3.5% compared to last year.
You'd look at that and say that's pretty good.
However, before January 2020, the average number of completed properties per 12 months exceeded 200,000.
This is pretty good.
Since then, the average has fallen to around 170,000 due to an 11% decrease in approvals over the last 12-month rolling period, according to April's data.
Let's further emphasise how bad this problem is. Apart from the fact that we're building 30,000 less homes every year, we're coming out with a plan of building 250,000 homes every year (I mean we've never done it before, but let's just say that we're going to and never achieve it) to then actually compound and further emphasise this problem, we've had record levels of migration.
If we had simply just constructed 30,000 less homes in the year, you probably wouldn't see prices increase at the level they have been.
However, when supply decreases by 30,000, and immigration increases by 400,000, what do you think is going to happen?
Now, interest rates affect every single person, but not in the same way and this is where I spoke about the middle class being destroyed, and it's playing out in front of us.
Some decided to actually take some action because I know after I dropped a video about it (Middle Class Collapse) on my YouTube channel, I had a lot of people reach out to me and say: “Look, this is eye-opening. I want to make a change.”
Then there were a lot that didn't and I hope that you're reading this article and if you contact me after this, amazing. If you want to go watch that video and then make a difference by making a move, then please do so because believe it or not, time is running out.
What was easier to buy 12 months ago is a lot harder today, and it will be a lot harder in 12 months from now. So it really comes down to what options you have left and there aren't many at the moment.
Now, what we want to focus on is the seasonally adjusted number, which is in the red and we can see that we peaked out in 2021. Since then, we've just been declining and we aren't really seeing those approvals increase, although they're starting to level out, which is improving.
If we see interest rates increase because the latest inflation data hasn't been that great for the narrative of interest rate cuts, we could find ourselves seeing approvals fall even further and we know approvals are one thing but completion is a whole other game.
So until approvals actually go up, you can't start thinking about when the price of properties has increased to a level where they're unaffordable, and as well as that they've reached the top. As long as we have approvals at the levels they're at, you're probably not going to see any sort of property market crash.
To build those homes, you need people to build them. You need tradies to build them and there's an immediate need for 90,000 new tradies with an additional half a million required over the next 5 years to meet the target of 1.2 million new homes by 2029.
I can tell you again we're not getting to that number.
If we get to that number, and you look at the 18.6-year cycle, suggesting that: we might see a peak in prices in Australia in 2026, well you're probably not going to see it until:
I think this is why the 18.6-year cycle is shifted a little bit in Australia at least when it comes to prices.
I think we've got a lot more to do when it comes to supply catching up to demand, and then when we get to that level, that is when we're going to see market equilibrium and that is when we will start seeing prices start going the other way.
Until then, we are so far away from prices actually correcting, especially at the levels that some people claim they're going to be, because apparently we're going to drop by 20% and the whole market is collapsing—sounds absolutely absurd at this point.
You've got economists coming out and data groups suggesting that prices are going to head much higher in 2025.
The reality is right now, some people cannot buy a home and then there's others that have plenty of property, they're all going up, and they're just waiting to refinance to buy some more.
Do you think Australian prices are going to go higher in 2025 or do you think they're going to go lower because interest rates aren't coming down (In fact, they might hike in the next meeting.)
Let's start helping each other, keep the negativity away and help each other find some clarity in a time of confusion.
I'll catch you guys next time. Thanks, guys!
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
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