House Prices Going Up Or Coming Down?

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Housing market consensus across Australia and New Zealand is confusing, to say the least. In an environment where MSM can no longer be trusted to bring forth the truth, what choices do property investors have? Not many.

As the first quarter of 2021 comes to a close, property investors on both sides of the Tasman are left with conflicting reports concerning the housing market.

In this relatively short article, I want to remind all property investors, some of the foundational aspects of property investing, which I have been writing about for a long time now.

It is true that the mainstream media cannot be trusted to report the truth. They have shown time and time again that their reporting is more to maintain a political bias than to represent an objective voice in the midst of all the chaos.

Lets look at a few truths

  • House prices are still going up across Australia and New Zealand.
  • Borrowing is still incredibly cheap in most developed markets around the world.
  • Interest rates are unlikely to be shooting up anytime soon.
  • There’s a lack of supply of housing stock in most high-density cities.
  • The economic fundamentals that have traditionally driven house prices up, are just not there.

So what does it mean?

The current market frenzy is driven by FOMO – plain and simple. There are people out there still prepared to pay top dollar for a property that’s over-valued by at least 15%.

Is this what buyers are thinking?:

Prices are going up. Borrowing is cheap. We don’t know how long we may keep our present jobs. Let’s get onto the property ladder before its too late.

On the other hand, the massive bond buying frenzy continues to be ramped up and if any of you count on treasury bonds for a fixed income, you’re in for a very tough 10 year period. HEre’s why:

10 Year Bond Yields

This is the interest rate (commonly called Coupon rate) payable for 10 year treasury bonds across NZ, AU, US, Japan and Germany. As you can see Japan is barely above 0% with Germany being in the negative territory – how is this even up for sale? Could you sell something in your shop for -$0.50 cents?

Even with NZ, AU and US – its only just above 1.5% to 2%. So if you want to earn 2% per year and have your capital tied up for 10 years, this is where you would probably go – right? Well, I hope not.

Meanwhile, recent reports coming out of Australia are stating that “Australia’s property market is officially booming, with prices now rising at the fastest rate in 17 years.” – If you scroll down to the Corelogic part, you will see some interesting stats there. Remember, this is the same Corelogic, that was coerced by the Reserve Bank of Australia to stop producing housing market data last year. So can any of this be trusted?

So what are you going to do? Should you buy now, while you still can and while borrowing is still very cheap?

Should you wait, because you recognise that you might be buying at the top end of the market?

Or… should you do nothing.

With enough thought, I’m sure a reasonable argument could be put up for each of the three possibilities I’ve mentioned above. It is subjective and highly dependent on personal choice, risk factors and investing approach.

However, if one were to choose the third option (do nothing), a curious question emerges –

What do you do with money in the bank while you’re waiting for the housing market mess to settle down a bit?

Surely you don’t expect the 1-2% per year offered by the bank to be worthy of locking up your capital for an extended period of time? Do you?

While the world is watching the housing market swell up (or heat up), there’s a wave of smart investors that are recognising that the real money and liquidity is in the markets – the capital markets I mean.

I’ve said this before, and I say it again. If there’s a way to make money from an industry without actually participating in the industry directly, without taking on any debt, without getting affected by the macro-economic factors as such – wouldn’t you want to consider it?

That’s the world of Real Estate Investment Trusts – however, most traditional real estate investors don’t know about it. Well perhaps its time to change that.

The difference between false memories and trues ones is the same as it is for jewels; it is always the false ones that look the most real, the most brilliant – Salvador Dali

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