The Real Estate Boom You Don’t Want To Be On The Sidelines For.

Want evidence straight from the coal face that we are entering a boom in the Australian real estate markets?

Australian home values continue to rise across the country. Combined regional and capital cities rose 2.1% higher in February. It is the most significant month on month change in combined national home values since 2003.

And it gets better…

In March, there was a 2.8% rise in home values. The fastest rate of growth across all capital cities since 1988. With price increases like this, no wonder the big banks are forecasting double-digit growth.

Source – CoreLogic

A combination of low interest rates & demand exceeding supply is fueling the buyer frenzy. Across the nation, record levels of household saving have been recorded, meaning that buyers are locked and loaded. And where do these savings end up? In the property markets & share markets.

History provides us with insight into what can unfold when vast amounts of government stimulus are poured into an economy after an economic shock. The outcome is a significant upswing in property prices, as the real estate markets lead an economy out of a downturn.

The RBA continues to buy more government bonds freeing up more credit for banks to continue to lend out to borrowers. This drives more cashed-up buyers into the real estate market. With supply already so low and demand so high, property prices can only go one way. This is how a self-reinforcing system occurs.

The reinforcing system looks like this.

Easy cheap credit -> Mortgage lending increases -> More demand -> Demand exceeds supply -> Increased competition -> Drives up property prices -> FOMO, everyone wants a piece of the action > The cycle restarts.

We currently know that owner-occupiers are leading the increase in property prices. See graph below.

If investors lead a boom, then there can be a large amount of speculation in the market. Owner-occupiers, however are motivated by affordability. As long as credit remains cheap and affordable housing is on offer, then the boom will continue. Currently, markets such as Brisbane, Perth and Adelaide offer affordability compared to Sydney and Melbourne. Once the affordability ceiling is reached, demand will begin to slow.

CBA and Westpac predict houses to grow by as much as 15-20% p.a. over the next few years. The RBA has announced interest rates won’t increase for at least 3 years. This information alone gives us context that this boom could last anywhere from 12 months to 36 months and beyond.

Happy investing & happy house hunting.

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