Crystal Wealth Newsroom
Property market takes a once-in-a-lifetime turn
There’s been much talk about property prices over recent months. After four decades of continual growth, the property market has taken a hit. Property has been a very reliable investment strategy for as long as many of us can remember, however CWP’s external investment researcher, Tim Farrelly, believes that’s all about to change.
“The fundamentals driving residential property prices have changed – in practice, the key driver of capital gains seems to be bank lending policies and affordability – how much the banks will extend as a loan to any particular individual,” he says.
“Bank lending policies depend on wage growth, interest rates and the bank regulator. For the past four decades wages have risen and interest rates have fallen, leading to an inexorable increase in the amounts that banks will lend and, therefore the price of residential property.
“Once mortgage interest rates hit their recent low that particular driver of higher property prices reached its limit. In fact, that driver has now gone into reverse – mortgage interest rates are rising.”
Tim believes the amount banks are prepared to lend property buyers will fall over the next two years, which in turn could result in a fall of 10-20 per cent in property prices.
In the longer term, rising incomes will repair some of the damage to property prices, however, Tim says this will take time – some decades rather than years.
“Our estimate of the ungeared capital gains for property investors over the next 5 to 10 years are in the order of 1 to 3% per annum,” he says.
Tim’s advice to home buyers is to ‘hold your fire’. There will be a better time to buy residential property in the next few years particularly for homeowners, so prepare your finances and wait for a solid fall before buying. Investors should look to opportunities in other markets as our estimates of geared property will remain negative for some years.
If you’d like help assessing where best to invest, speak to one of our advisors.