Property prices in Australia could double within six years even if interest rates rise – history proves that such a scenario is possible.
Big banks, economists, financial expert Effie Zahos and writer Scott Pape, better known as “The Barefoot Investor,” are warning borrowers to brace for price drops in 2022 and 2023.
Reserve Bank of Australia Governor Philip Low also hinted that the interest rate could rise “plausibly” from a record low of 0.1% in 2022, rather than “as soon as possible” in 2024, as he repeatedly promised last year.
This year’s rate hike will almost certainly end the deuce era of mortgage rates ahead of it and be the first hike since November 2010 since the global financial crisis.
Property prices in Australia could double within six years, even if interest rates rise – history shows that this is possible.
Housing prices rose between 2002 and 2008 as rates rose.
BERNEY: Up 199 percent.
ALBANY: Up 199 percent
GERALTON: 199 percent up
Launceston: up 166%.
CAIRNS: 147% growth
PERTH: up 147%
BRISBANE: up 127 percent
DARWIN: up 127 percent
ARMIDALE: up 117%
PORT LINCOLN: up 109%
ADELAIDE: up 103%
CANBERRA: up 103%
GOLBURN: Up 103%
WARRANMBUL: 87% up
But between May 2002 and March 2008, the RBA raised interest rates 12 times from 4.25% to 7.25%.
This sent mortgage rates skyrocketing from 6.3% to 9.5% as banks raised their lending rates even as the RBA kept interest rates flat.
Simon Pressley, Head of Propertyology Research, said the story showed why the prophets were wrong in predicting a significant drop in property prices as interest rates rise in 2022.
“Most real estate enthusiasts currently predict that property markets will remain flat, but Propertyology believes there is a chance of 100 percent capital growth over the next six years,” he said.
Mr Pressley noted that house prices doubled between 2002 and 2008 in Brisbane, Perth, Adelaide, Hobart and Darwin, as well as in the regional centers of Cairns in far north Queensland, Warrnambool in western Victoria, Port Lincoln in South Australia, Launceston in Tasmania. and Goulburn in southern New South Wales.
They even tripled in the Tasmanian city of Burney and in Albany and Geraldton in Western Australia.
Over that six-year period, property values in Melbourne rose by 66% and in Sydney by 26%.
Last year, the average Australian property price rose by 22%, the fastest annual rate since 1989, when interest rates were 17%.
At the time, real estate values rose 29 percent in a year.
Propertyology points out that property prices across Australia doubled between 2002 and 2008, even as interest rates rose (pictured is a Brisbane teenager buying his first home in Upper Kidron).
Hobart (pictured) also doubled along with Perth, Adelaide, Darwin and Canberra among the capitals.
The average Australian property price was $728,034 in February, following a modest 20.6% year-over-year increase, according to CoreLogic.
With a 20 percent deposit, the average full-time worker would have a debt-to-income ratio of 6.4, owing the bank $582,427.
This is well above the Australian Prudential Authority’s “sixth” threshold for dangerous debt.
In the December quarter, almost a quarter, or 24.4%, of new borrowers had a debt-to-income ratio of six or more, up from 17.3% a year earlier, data from banking regulator APRA showed.
The median home price nationwide last month was $791,412 after a 22.9% year-over-year increase.
Mr. Pressley said the rising debt-to-income ratio had failed to stop previous housing booms.
“Official data confirms that this figure has increased every year for three decades, and this has not stopped the increase in the national median house price from $100,000 to $800,000 over this period,” he said.
Many experts wrongly predicted a prolonged fall in property prices in early 2020 when the pandemic began, but that was before the Reserve Bank cut interest rates to 0.1% in November of that year.
Commonwealth Bank, Australia’s largest home lender, is forecasting a 3% drop in prices in Sydney and Melbourne this year and then another 9% drop in 2023.
But property prices are expected to continue rising in 2022 in other capitals.
Armidale in the New England region of New South Wales was one of several regional centers where property prices doubled between 2002 and 2008.
Last year, the average Australian property price rose by 22%, the fastest annual rate since 1989, when interest rates were 17%. Then the cost of real estate increased by 29% per year.