Late in February plenty of people were betting that interest rates would go up by late 2022.
Not long after those predictions the Reserve Bank of Australia doubled its bond buying and confirmed in its monthly meeting, “that rates won’t be going up until 2024”. Ouch! for the smarty pants who made those February predictions.
I feel like a broken record, but please let me remind you that, when COVID-19 hit, I said there were three things that mattered: logistics, timing and liquidity.
As soon as the US Federal Reserve announced its stimulus package I knew this crisis would be a great opportunity.
Banks and economists were predicting property prices would drop by 10 per cent to 30 per cent – that didn’t happen. It was just wrong, the same goes for those same smarty pants who bet against the RBA in February.
So, by now you know that the property market is running hard. House prices were up by more than 2% for the month of February, meaning annual growth of around 25% (I’m not talking about units here).
It’s early days, very early days, but you will recall that on the webinars we have been doing lately that I’ve said these super low interest rates haven’t yet sunk into the Australian buyer psyche.
That will take some time but when it does you will be very surprised how quickly prices will jump. It’s started already but still has a long way to go.
The RBA was clear as a bell after its March meeting that interest rates will remain low until 2024. A paraphrase of the last paragraph in their statement highlights the importance of this point: The Board will not increase the cash rate until actual inflation is sustainably within the two per cent to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. The Board does not expect these conditions to be met until 2024 at the earliest.
For me it was more significant that the RBA extended its bond buying and signalled more bond buying, i.e. stimulus. That means more money coming into the economy. It also means investor borrowing rates should drop even lower. Currently there is a 1 per cent spread between owner occupier and investor borrowing rates. I expect that to compress later this year, therefore I’m not locking in rates just now.
Record property sale prices are being set every day and that’s something buyers will need to get used to as listings remain lower than normal. SQM research has produced some great data showing that while new listings were up by 52.4 per cent in February, overall the number of total listings were down 2.7 per cent as a result of buyer activity. Agents are reporting they often receive up to 100 enquiries on new listings and offers are being made or sales done within days.
Importantly the banks are supporting the market with total lending figures for housing in February jumping 10.5 per cent, which translates into an annual growth rate of 44.3 per cent – the highest annual growth since 2003 according to ANZ.
The smarty pants will say that these asset price jumps can’t be sustained – they’re wrong. They are betting against the RBA and its own research shows that house prices are powerful in driving a wealth effect; a 1 per cent increase in the value of housing wealth will lead to a 0.16 per cent increase in the long-run level of consumption. The economy needs that right now.
This is not a time for you to procrastinate if you want to build wealth in property. You need to be buying cashflow positive property in high growth areas and duplicating as soon as you can. We will all look back on these years in the future and say “wow, what a ride”.
For more on this, I will see you next week on our Client webinar with an amazing guest speaker you absolutely do not want to miss.
You can still register here.
See you soon,
John
