What is it with House Prices?

What Is It About House Prices?

If I have to read another newspaper article about falling house prices I might go stark raving mad!!! House prices are falling – ok – we get it!!! Go find some news that MATTERS!

For most Australians their house is their most expensive asset. It is money that they have already spent to live in a house and area of their choosing.

IT IS NOT AN INVESTMENT

You see, you have to live somewhere – as human beings we require shelter and your home is basically a part of staying alive, it provides shelter against weather – that’s it. The fact that the value of that house rises or falls is immaterial to your personal well-being, because the house is still providing shelter.

Since 2008 all I have heard is “house prices can’t fall” or, “you can’t go wrong with property” or “safe as houses “. It is amazing how quickly people forget we have had property downturns before and we will have them again. So why are property prices falling now?

Three really simple reasons:

  1. Credit
  2. Immigration
  3. Interest Rates

 

  1. Credit

Banks are not lending as much as they were – slowing down lending means less people are able to secure bank finance to buy property.

  1. Immigration

 

Overseas migration to and from Australia in 2018, resulted in a net increase to Australia's population of 237,200 people:

    • There were 526,300 migrant arrivals which was an annual decrease for the first time since 2014
    • There were 289,000 migrant departures which is the highest number on record

There are less people coming to Australia and more people leaving.

 

  1. Interest Rates Don’t Matter

As the Reserve Bank reduces interest rates (they are already at historical lows) it does not make any difference. The reason is that the major banks don’t pass on these rate cuts to home buyers – they are not compelled to reduce the mortgage rate at all.

House prices will remain flat or continue to fall while these three factors remain in play.

For most of us – it does not matter – we still have our shelter.

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