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The managing director has advised agents that there’s no need to buy into doomsday proclamations.
Acknowledging that while interest rates are rising, RE/MAX’s Joel Davoren has conceded that “there has been a lot of alarmist stuff about interest rates rising and affecting both capital growth and affordability”.
Stressing that the “experts” routinely get it wrong, Mr Davoren reflected on “the many failed doomsday predictions we were subject to over the last few years … What actually happened was a super crazy time for real estate.”
From his perspective, it’s the same people who made the previous failed predictions who are now talking about floundering property markets in 2022–23: “‘Concerned’ commentators are talking up flatlining property prices.
“And what about these ‘woe is me’ debt-to-income ratio headlines? RBA data says that the average Australian with a mortgage is currently only using 4.4 per cent of their household income to cover loan expenses and that household liquidity currently consists of $260 billion, most of which is squirreled away in mortgage offset accounts and redraws.”
Referencing data from the CBA, he quipped that 35 per cent of customer loans are reportedly more than two years ahead on mortgage payments, before stressing that Australia’s banks are “extremely conservative when stress-testing loan applications”.
“A recent headline dramatically touted a 30 per cent fall in ‘the Australian property market’ (as if it’s one single market!),” he penned, arguing that such a fall hasn’t occurred before — and leading him to surmise “no credible reason to suggest one of this size should now”.
“And don’t get me started on all the bad news stories, talking incessantly about the US economic scenario.”
Not a new cycle
It’s also certainly not the first time that interest rates have risen, with the managing director pointing out that “over the six years to August 2008, interest rates increased by 3.2 per cent and that didn’t stop 100 per cent or more capital growth across Australian real estate markets”.
“Twenty years ago, when Australia last had a property boom, the median house price in most locations more than doubled even though variable home loan interest rates increased from 6.3 to 9.5 per cent in the six-year period; and that was in more than 100 Australian cities and towns, including six out of the eight capitals,” Mr Davoren detailed.
Looking even further back, he highlighted how the standard variable rate home loan back in 1970 was 6.5 per cent, and by 1990 it was 17 per cent, “yet the combined capital city median house price increased eight-fold (from $14,000 to $122,000)”.
Reminding agents that interest rates are only one of the many factors that affect home prices, Mr Davoren imparted that “the way property markets perform from one year to the next is always determined by a combination of influencing factors, which number in the dozens”.
Drawing on the insights of Propertyology’s head of research Simon Pressley, the managing director said that at any given moment, there are going to be various macro factors that have a “lifting” versus a “dragging” influence on the property markets.
At present, there’s a net positive lift influencing markets. These “lifts” include factors such as overseas migration, international tourism, investors, upgrading and lifestyle buyers, wage growth, high home equity, $230 billion in household savings, cheap home loans, low stock levels, supply constraints in construction materials, rising rental income and $45 billion infrastructure spending.
They are all working to overcome “drags” currently at play, which include: affordability, inflation, rising interest rates, tighter credit assessment, skilled labour shortage, rhetoric and commentary.
He said that despite the fact that Australia has entered an inflationary period, “Australia’s economy is currently the strongest it has been in 50 years”.
Indicating that Mr Pressley has also pointed out that there is no direct connection between house price movements and inflation, Mr Davoren said that “if anything, the historical evidence suggests periods of high inflation coincided with periods of the strongest property markets”.
“We have more jobs available than people to fill them, business revenues are rising, we have strongest wage growth prospects for a long while and the RBA confirms household finances have never been stronger. This is the other side to rising inflation and interest rates,” Mr Davoren said.
Adding to that is the fact that “more than 20 cities and towns across Australia are still running at double-digit growth pace”.
“Simon Pressley thinks the boom is nowhere near over and would not be surprised if prices double over the next six years in some parts of Australia,” the managing director continued.
That’s because, in Mr Pressley’s words: “Housing will never go out of fashion.”
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