The television news bulletins are talking up the possibility of good times ahead for real estate in Australia, suggesting that investors fleeing the stockmarket will jump into the property market. An investor buying frenzy would certainly be a positive, even if it simply gets property moving again and doesn’t actually push prices up. CommSec senior equities economist Craig James thinks this scenario is a real chance:
“Back in ’87, the sharemarket was shunned, interest rates were cut significantly so cash was shunned, and investors decided to go into the property market.”
– Craig James in The Age
Further interest rate cuts are also a positive sign for the real estate industry. With every cut in the official interest rate, homes become that much more affordable as weekly repayments slide.
Then there’s the other side, with Professor Steve Keen suggesting that prices could drop by as much as 40%. Investors won’t be happy reading that, so they may stay away from property for now, or at least until things stabilise.
And with Australia going close to a recession, job stability is looking fragile so people won’t be keen to build on their mortgage by upgrading. Just thinking about it, this may lead to an increased demand for smaller properties as people seek to downsize (thereby shrinking their mortgage repayments).