What’s Next for Property Prices?

The Reserve Bank (RBA) is in full arse-covering mode.
 
They had one job to do: keep inflation (that is, prices) from rising out of control … and they failed.
 
 And, now inflation is running rampant, the RBA has no other option than to keep jacking up rates each month to try and bring it down.
 
Yet it gets worse.
 
As a result of their previously terrible forecasts (“no rate rises until 2024 at least”), right now many Aussies find themselves paddling on a boogie board.
 
And this year they’ll look up and see a tidal wave approaching them: the fixed rate period is about to end for one in four home loans …  causing their repayments to go from 2% to 6% (or higher).
 
Wipe-out!
 
Again, despite all this, the RBA has to keep hiking.
 
The current thinking is that the RBA will continue pushing rates higher until something snaps in the economy and forces them to paddle in the foam for a while.
 
So, the $64 million question is: what will break, and when will it be?
 
To find out, this week I decided to talk to one of the few experts who accurately predicted both the COVID boom and the subsequent fall in the property market: Christopher Joye, the founder of Coolabah Capital, who manages $7 billion of fixed interest assets.
 
“So when do you think the housing market will break?” I asked.
 
“What do you mean ‘when’? It’s already breaking!” he told me.
 
“Across the five capital cities, index prices are down 10% right now, and they’re falling at more than 1% a month. So we are one month away from the biggest losses on record in 40 years.”
 
Back in October 2021 – before the RBA had started hiking – Joye stuck his neck out and suggested that property prices would fall between 15% and 25% because the RBA would be forced to hike.
 
Today, he has three forecasts:
 
First,  he believes the RBA will hike three more times before they pause and paddle.
 
Second, the impact these rate rises will have on the economy will be widespread and painful.
 
(I agree.)
 
Finally, property prices will continue to fall at least another 5% to 10%, which would be smack bang in his original forecast.
 
Look, it must be said that I have no crystal ball, and neither does anyone else. 
 
Still, even a grommet in floaties understands there had to be consequences for going on a borrowing binge when rates were at all-time historical lows. This year we’ll find out just what those consequences will be.

Surf’s up!
 
Tread Your Own Path!