The Coming Property Crash

Hi Scott,

With all the craziness of Russia invading Ukraine and China looming in the background, I had a sudden worrying thought today. What would happen financially in Australia if there was a third world war? My partner and I are in our early forties and are about to purchase a third property. It is a significant spend, so is the possibility of a world war something we should add into the equation? I guess I expect the usual stock market crash, but should we also be concerned about a possible crash in the housing market?

Tania

Hi Tania,

Well, I am.

However, it’s got nothing to do with Russia or China or any other geopolitical risk — which I know very little about, and cannot predict.

Instead, what I am focused on is the impact of rising interest rates. The last time the Reserve Bank increased rates was November 2010 … and at that time the cash rate was 4.75%. Today it’s at 0.10%.

The housing market has gone a little crazy since Covid (as has the share market), as a result of basically zero interest rates. Nationally, house prices jumped by 22% over the past year, according to CoreLogic. I’m certainly not predicting it, but it wouldn’t surprise me if house prices (and the share market) came off a bit from here. That said, I have no plans to sell any of my own property. And if you can afford the investment, and you plan on holding it for decades, you should be fine.

Scott.