AUSTRALIAN PROPERTY BUBBLE 2023: ARGUMENTS FOR A MARKET CRASH
Today we’re going to make an argument for the Australian property market to crash. I know, we’re back here again talking about real estate but let’s face it.
The current environment that we’ve lived through has sprung up the biggest headwinds for real estate that we can all remember.
In this video we’re going to go over the core arguments of why the property market is cooked and the Australian love addiction with real estate is about to end.
Australian Property Bubble 2023
Ok guys first off I’m going to address part of the audience here because I know for some of you the Aussie property market is religion and you are going to get triggered at the slightest wiff of any negativity.
I just want to you to put your emotions aside for 5 minutes.
After all good financial decisions involves a good understanding of the both benefits and the risks. I’ve been in finance for 15 years now, I’m on the front lines and I’m saying people are good at ignoring the risks.
Anyway, let’s talk the elephant in the room and that is interest rates then we’ll get onto other things like the inflation and rising costs of living.
The main factor for house prices dropping is rising interest rates. In the past 12 months interest rates went up a whopping 267%. That is from 1.89% to 5.04% for the standard home loan.
The largest expense for the average Australian just went up 267% in 12 months.
How could the property market not crash?
By the way, this is the biggest predicament for the Reserve Bank of Australia. They do not know if the aggressive stance they took to interest rate rises in 2022 have worked or not because the data around the reduction consumer spending is lagging.
But at the end of the day the damage has been done already. It’s only a matter of time. The data around Aussies having all these savings is in my opinion over cooked.
Plenty of people had plenty cash after the COVID handouts but I can take a good guess and say that’s disappearing FAST.
There are a large amount Australians living week to week. If the major expense goes up 267% where do they reduce their spending?
I’ve got to make a point here because some smarty pants will mention the 267% thing. That’s how much the interest rate has gone and not the actual loan repayments. I get that. I can reassure you that the rising home loan repayments are an issue for people because I’ve been the one getting the calls from people worried about increasing interest rates.
I could argue this for a while. Eventually, there comes a point where a certain amount of people cannot afford the debt burden and have to sell their properties.
There then becomes a point where the property market has too much supply and not enough demand and prices start falling. It’s pretty simple.
Australia’s Cost of Living
Check out the report here that shows the percentage of people per income bracket that are living week to week.
First off, I don’t know who is earning $200k+ per year and are living week to week, if that’s you, you should take a good look at yourself.
Anyway, the data here is actually from 2021. This is before the 267% increase in home loan interest rates. This is before we started getting all this inflation.
The argument here is the same. People will be forced to put their properties on the market because they need the extra cash to get by in the Australian Property Bubble in 2023. And let’s face it, if you’ve owned a property for more than 5 years you’ve probably still got a fair bit of equity.
If the inflation data from January is anything to go by then at best these rates are going to remain steady. This means that the cost of living is still increasing at a very elevated pace than what we are used to.
Canary in the coal mine
Here’s the potential canary in the coal mine. The only reason we aren’t in a recession is strong unemployment figures.
A report from the US economy (graph shown in the video above) shows unemployment always reaches it’s low just before every recession.
And it makes sense, all of the cheap money is flowing through the economy, businesses are reinvesting for future profits then all of a sudden, “baaaam!”, that money’s gone. The smart people start holding onto the cash because they know something’s coming.
I’m not sure if you’re aware of what’s going on amongst some of the world’s biggest companies but they have been cutting back on staff in recent months.
That’s a signal to me that there’s tough times coming aka “RECESSION“. Throwing the extra hardship of a recession onto the economy is going to force people to sell because the aggregate income levels drop.
Now I get that governments’ job is to manage the economy and they can ease rates but what sort of government is proactive? It’s all reactive which means the damage has been done.
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