Has the Australian Real Estate boom finished already?

I have seen a lot of com­ment­ary lately spec­u­lat­ing about the “prop­erty bubble” burst­ing and the prop­erty boom being fin­ished. No doubt you have too and if you haven’t already got on board you are prob­ably regret­ting miss­ing out. It seems that any time things seem to be going well there are ele­ments within the media who want to hose it down as quickly as pos­sible. I guess bad news sells bet­ter than good.

Australian Real Estate boom finished already. house exploding.

Con­versely, though I have also seen a lot of com­ment­ary from some well respec­ted prop­erty ana­lysts, who believe this is not the case. A recent art­icle by Terry Ryder of www.hotspotting.com.au sug­gests that there has not even been an Aus­tralian Real Estate boom yet. He points out that there has been some sig­ni­fic­ant growth in the Sydney mar­ket and per­haps Mel­bourne, but most other State cap­it­als are yet to see any­thing like this. So to call a national prop­erty is per­haps premature.

Many ana­lysts, includ­ing the highly regarded BIS Shrapnel, are sug­gest­ing that there is still some sig­ni­fic­ant growth to be seen in regional areas such as New­castle and Wollon­gong as well as State cap­it­als such as Bris­bane and per­haps even Adelaide. So if you have not yet dipped a toe in the water as a prop­erty investor I sug­gest there may still be plenty of oppor­tun­ity to do so.

You should have FOMO with interest rates this low‏

Des­pite recent con­jec­ture to the con­trary, the home loan mar­ket is still boom­ing at the moment.

Com­pet­i­tion between the banks and non bank lenders is at an all time high lead­ing to record low interest rates. The simple logic behind this mark down is this: they can afford to.

The chart below demon­strates what I am try­ing to explain. As you can see, the time period between 1999 and 2008 the interest rate mar­gin between the RBA cash rate and what you paid for a vari­able home loan was around 1.20%. That mar­gin has grown to around 2.60%.

period between 1999 and 2008 the interest rate margin between the RBA cash rate

As home loan mort­gage profit mar­gins grow for the banks, con­ces­sions can be read­ily accom­mod­ated, sav­ing investors con­sid­er­able amounts.

With this in mind, its nat­ural for many to have a Fear of Miss­ing Out (FOMO) in invest­ment oppor­tun­it­ies at this time.

Solid interest rates as far as the eye can see

The main­stream fin­an­cial media can be a strange beast. After pre­dict­ing doom and gloom for the Aus­tralian eco­nomy for the last 6 months (as min­ing invest­ment dies away), the head­lines were all of a sud­den full of con­fid­ence when exports demon­strated a solid lift for the quarter.

Unfor­tu­nately, as soon as there’s even a minor hint of eco­nomic gain, the pun­dits start anti­cip­at­ing an interest rate rise.

So, as I reg­u­larly do, I have looked at what the real author­it­ies in this field think of this growth data. These are people who have actual major invest­ments in this mar­ket. The ASX futures mar­ket has actu­ally sur­mised the next cash rate rise to be in Septem­ber 2015.

Obvi­ously, the futures mar­ket can be inac­cur­ate, par­tic­u­larly if there is a world eco­nomic col­lapse like a GFC. Non­ethe­less, this ASX estim­ate is a long way from gen­eral media con­jec­tures of a rise in the interest rate.

Stable interest rates as far as the eye can see


With expert­ise span­ning mort­gage lend­ing, prop­erty law, prop­erty invest­ment and bor­row­ing to invest within Self Man­aged Super­an­nu­ation, Aaron Sains­bury offers more than 25 years pro­fes­sional advis­ory expertise.

He is an enthu­si­astic sup­porter of fin­an­cial lit­er­acy, work­ing closely with cli­ents to help them gain and main­tain con­trol of their fin­an­cial future.

Aaron is thor­oughly com­mit­ted to build­ing lifelong rela­tion­ships with cli­ents based on the highest qual­ity ser­vice, advice and trust.

Con­tact Aaron dir­ect on 02 9818 8643 .

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