PROPERTY MARKET WILL DOUBLE IN 5 YEARS: IS IT A BAD IDEA TO BUY PROPERTY?
Make 2023 the Year You Start Your Journey As A First Home Buyer
This might sound like the craziest thing you’ve heard all month but I think the property market will double in 5 years.
This may feel like a dubious claim and I get it – this current rising interest rate environment is a massive headwind to property prices.
In this video we’re going to go through not only why I think property prices can double, but whether or not you should actually buy property.
Now that sounds like a no brainer, but upon closer inspection, it’s so simple.
Some of this stuff is going to go over things that I’ve learnt along my journey in the last 10 years about the finance and the property market so I’m excited to share it.
Okay, let’s start.
Will property go up 4x in the next years?
Let’s start back about 6 years ago.
It was 2016, I can still remember this moment, I was in my backyard talking to one of my earliest customers and now my good friend, Kris. We were talking all things money and inevitably things go to property and I had told him that I thought the property market had a good chance of doing a 4x in 10 years.
I know pretty crazy right? But if you look at the graph from realestate.com.au of my home town in Frankston which is an outer Melbourne suburb you can see the aggressive nature in which property has increased.
Now I know that at the rate it’s not going to do a 4x. Obviously, there are reasons why I still believe it will get there which I will go into later in the video.
Honestly, back at that time, it sounded ludicrous, even to me. My bold prediction was based upon the research that I had been doing at that time.
Before I go into the research that I had done and what was learnt from it I’d quickly like to set a bit more context as to why I was doing this research.
At the start of 2011 I had left my banking career in a Big 4 bank to start my own Mortgage Broker business. I was sick of working at the bank basically because I didn’t like selling people a whole host of financial products. At that time Customer Service Officer meant that your job was a Salesperson.
Anyway, at that stage it was my mission to help my clients in the best way I could and that was by learning about property investing because Australians are mad about property investing.
Understanding the property market was a great task to set upon but you get to a point where you have to go past understanding the supply and demand factors of the property market and understand the supply and demand factors of money.
Because let’s face it, this property market is fuelled by debt, right?
This opened up a pandora’s box to me and understanding economics is a discipline I still practise today.
Anyway I won’t bore you with the rest. What I learnt about our money system was:
Our Money System
- We need to keep creating more money and more rapidly as time goes by.
- I figured out that most of this created money comes in the form of lending for property or home loans. This would therefore drive up house prices massively and I think that’s proven to be, in my eyes, a correct assumption.
With regard to the timing aspect of it (the 10 years), I think my prediction is now coming closer and closer to being realistic as the years pass.
I had been reading “The Secret Life of Real Estate and Banking” by Phil Anderson and his 18.5-year property clock or land cycle had just timed the market top to around that period, 2026 -2027.
I would suggest if you’re interested to learn about property and investing, you should probably read that book as that book is incredibly easy to read and allows you to understand the actual things that are going in the world at that time which allows the property market to boom.
Trust me, most economics books that are very hard to read and will put you to sleep really quick. This will give you a good start in understanding these things.
Fast forward to today, October 2022 where we’re about halfway through that time and when we look at it, that prediction is more realistic.
Currently, it looks like the end of all things for all markets and I have to admit it does sort of feel like monumental things are about to happen in the world.
But I go back to the fundamentals – and that is that they have to continuously print more and more money. I know that’s not going to get me many fans but that is the reality that we are living in.
That tells me that the current interest rate rising environment that we are in will be reversed fast when central banks realise that doubling home loan interest rates in the span of 6 months is a bad idea.
For more on that you can check out another video I did on the channel.
I mean, just think about our number one expense here in Australia – our housing expense. The central bank, which pulls the levers, has basically doubled the largest household expense in six months!
What I want to add to that is they haven’t even figured out how much impact it actually has on the economy, because it actually takes a period of time for those things to seen and measured.
What’s dangerous is when you pull the lever all the way down and you go hard on interest rates, there’s no going back. You got to pull the lever the whole way up and reverse interest rates, and I think that’s what’s going happen.
Either way, more money needs to be created.
Now let’s go into more detail in as to how the boom plays out.
How the boom plays out
There is already a massive supply shortage in property. I’ve talked about this in other videos but let me just peel off a few major points that will see property prices rise massively.
By the way, the low supply in the market is not up for a debate. That is just a fact. If you look at what’s on the market, there’s actually been a low supply for a while. I could be wrong about other places in Australia, but I know this as a fact here in Victoria where I live, and I can tell you it’s been that way for at least a couple of years now, and that’s not going to change.
Property Shortage.
The gig is up – no one wants to sell property because they know it will just keep on rising. The more money they print, the more it’s going to keep going up quicker. People intuitively know this, and they’re holding onto assets like property, like gold, like Bitcoin.
Large number of Immigrants
On top of that are the 200,000+ immigrants coming per year, which is coming into our system.
We need to be constantly growing our population to hide the fact that we are getting less and less productive. Immigration growth does that because it makes our GDP go up and makes us look like we’re being productive. That keeps the politicians in power.
Homebuyers Schemes
To throw something on top of that are these new homebuyers schemes that will ensure there is no supply at all. Again, I have done a video explaining this point in more detail so I suggest you watch it.
These are all educated guesses, but you could say that my educated guesses are probably better because of my years of studying this thing.
Is it a bad idea to buy property now?
Remember when I said we need to keep creating money as time goes on?
Eventually it breaks down because the system creates wealth gaps. Eventually, those wealth gaps get really big and the old system needs to make way for a new, fairer one.
Let me tease this out a bit as it’s important.
Our banks lend more and more to residential properties, and less and less to small businesses. The government allow it as it’s less risky to them therefore “less risky to the system”. This means that property prices go up because we’re lending more to property.
But on the flip side, it’s not good because it forces property prices up faster than what wages can keep up. Actually, if you have a look at it, our wages have performed horribly against house prices in the past few decades.
When we lend to small businesses, it helps drive productivity and innovation, and that helps drive wages up.
This is good because it allows us to be able to afford and pay more for things like property.
The way we are doing things is unsustainable and we will have a crash of the system. Property prices cannot keep going up so fast whilst wages basically go backwards.
If you look back at history there are two things that wipe people out financially:
- Natural disasters (which you can’t control).
- Too much debt (one that we can control).
Here’s the thing about too much debt – lets just say this is you in 5 years – you didn’t think it was too much debt when you took it out otherwise you wouldn’t have taken the debt in the first place. This is how it always happens.
So, the question we should always be asking ourselves is, “are my debt levels too high?” and not just for right now, but for “what if rates are doubled?”
People are starting to understand this now because we are beginning to deal with doubled interest rates which most haven’t had to deal with before.
Speaking of borrowing, here in Australia we love borrowing 100% for property.
So for property investing, I’m going to divide it up here because there are probably a couple of different answers, depending on what situation you are in.
If I was a first home buyer now, I would still buy a property. That’s an opinion. It’s not a fact. But I would still buy a property. Why? Because rents are going to increase anyway and I need a property to live in, and if I keep on renting somewhere, it will be harder for me to save.
Rents are increasing rapidly, so there’s no winning situation there. Now, you might not be renting but you might be living with your family. That’s still not a winning situation if you’re forced to live with your family for a longer period of time.
So if I am a first time owner getting lots of government grants right now, I would seek to have that 5% deposit and just get into the property market.
Now, here’s why it’s a bad idea to buy property right now. If you buy a property now and then interest rates went up another 2%, would you be able to deal with it? Because I can guarantee you, there are a lot of people with million dollars’ worth of debt now.
Then what if the rates go up another percent, which they could in a couple of months? What if they keep on going up? You’ve basically got to work and earn more and more each year, and that’s not going to be easy.
The core message
So now let me get my message clear, because there’s a bit of a cross winds here. Let me just dumb it down and explain it to you and hit you between your eyes.
You want to acquire assets in these times (not financial advice). They’re highly inflationary times and assets are the only things that keep their actual value. But you must be careful of your debt levels because for all of history, the people who get into too much debt get wiped out.
That’s my message. If you’re in that position, the team here at Will Bell Mortgage Broker can help you come to a point where you can understand how much debt is enough for you, because everyone has their different risk levels.
So if you need help structuring your debt or you want to talk about borrowing, this is a great time to chat with an experienced mortgage broker and we’d be very happy to have a chat with you.
If you like the video, please like and subscribe. If not tell us what you didn’t like. If you think I’m just totally ignoring stuff, please give us a comment. Or if you got any other questions, put them in the comments section below. Til next time, cheers!
Mortgage Broker - Frankston, VIC
Will Bell has 15 years’ experience in the finance industry, the last 11 years he has owned and operated Will Bell Mortgage Broker. He specializes in residential home loans and over the years has carved out a trusted brand. This is proven by the reviews his customers have made regarding the service and the experience he has provided.
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