You might have heard that the Australian Property Market is going to crash as a reaction to the steep rise last year and earlier this year. 

Despite the pandemic (or maybe because…), 2021 was an unforgettable year. The prices increased and the value of Australia’s housing market skyrocketed which increased the combined wealth of homeowners by over $2 trillion. It’s clear that we are currently in the adjustment phase of the property cycle. The price growth in 2022 might be lower. Interest rates may keep on increasing which may cause difficulty for some homeowners and property investors. The value of some houses will decrease and certain segments of the housing market will suffer while other (sub)markets will thrive. 

One of the elements that impact a property’s value is the interest rate. If there are no buyers and there are forced sellers -which can result in properties being sold at a very low price- the real estate market will collapse.

If you are worried about the Australian Property Market Crash, we have listed 10 reasons why it is not going to happen:

1. The average Australian is wealthier than before.

Economists believe that during the lockdown, households were able to save an additional $230 billion, resulting in an increase in cash and deposits. Rising property prices mean that many homeowners now have 30% more equity than they had before. The overall residential property in Australia is close to $10 billion and only $2 billion worth of loans, making the Australian property market low risk.

2. The majority of borrowers show no signs of mortgage stress.

According to RBA, there are very few loan defaults. Half of the total homeowners have no mortgage and those who have a mortgage are able to make mortgage payments on time.

3. Interest rates remain low.

A lower interest rate is a significant factor in property values. Despoite recent interest rate rises we still enjoy record low interest rates.

4. Banks are conservative when it comes to affordability-testing loans.

When you borrow money, the bank or lender is responsible for ensuring that you have the financial capacity to make mortgage payments now and in the future. Banks and lenders identify your affordability through the stress test assessment. This is why getting a mortgage is different for every person.

5. In the past, rising interest rates did not cause the market to collapse.

Property prices may decrease when the interest rates rise but we also see the opposite in some instances so it does not mean the market will collapse. There are a lot of factors to consider. A lot of dominos need to fall before the market collapses.

6. Housing supply shortage ahead.

Due to Australia’s newly opened border, the number of property renters as well as home buyers is increasing which makes the housing supply decrease.

7. Immigrants will increase.

Eligible visa holders can enter Australia without a travel exemption or quarantining. Concessions are being provided to skilled visa holders, enabling them to stay longer. An increase in immigration means an increase in demand keeping prices steady.

8. Experts might have the wrong prediction.

There were predictions before that did not happen like the Debt Bomb. These experts have a track record of getting property predictions wrong…..

9. Australia’s economy is stable.

Part of the reason we are experiencing inflation is the rising interest rates. This means our economy is doing well, it is supported by exports of fuel and food which make a big downturn unlikely. The Ukraine war has caused an increase in demand for certain products.

10. Australia has a shortage of property rentals.

The opening of Australian borders increased migrants in Sydney and Melbourne. Rental demand is increasing while the supply remains scarce which makes prices go up and could bring more investors. 

    In summary, don’t be carried away with your emotions when making an investment decision. It really pays well if you have a deep understanding of every decision you make. At Micah Finance Solutions, we can help you understand the situation and guide you in making a wise investment decision. Schedule a Free Consultation today!