You are the boom

It’s hard to fathom what is happening with house prices right now.

Across Australia, all reports indicate we are in the middle of a significant property boom.

Even without the statistics, for anyone with even a passing interest in property, the following is obvious:

• There is an unprecedented number of people attending home inspections

• Houses are now consistently selling before the first open house

• Houses are selling for record prices (and much more than the 20% increase we so often hear)

• Speculators are entering the market

• Every man and his dog is now officially a property investor, spouting advice left, right and centre

• The media are talking up the impending boom at every opportunity they get

• FOMO has officially entered the marketplace

Why is this outcome so difficult for me to understand?

For one, we may not as yet realised the full impact of COVID on our economy.

Look to Sydney and Melbourne to understand that the real impact of continued lockdowns may be catastrophic.

There are people losing their jobs, people being asked to work reduced hours.

There’s no doubt about it, there have been workplace casualties as a result of COVID.

There are people that are now working from home and I wonder if business owners are starting to realise that now that they know they don’t need staff in offices, that they might not need staff in Australia.

Some businesses will never go back to ‘business as usual’.

Migration, typically a major factor in property price growth, has been significantly reduced.

These factors have a flow on effect that should, at least in theory, mean a softening of the economy and house prices as a result.

But the property market keeps on keeping on.

Although those that were lucky enough to stay employed during COVID may have extra savings as a result of not travelling, surely we are smart enough to realise this was (hopefully) a once in a lifetime experience, and that higher savings rates achieved may not be here to stay.

Let’s not forget, the 30 year mortgage is for most, a 30 year commitment.

From today on, we can expect interest rates to rise in the future.

On this point alone, the RBA have indeed confirmed that it is their intention to increase interest rates once they achieve their milestones.

Over some point in the next 30 years, unexpected events will happen.

At some point, you might lose your job.

You might experience ill health.

You might want to start a business.

You might want to start travelling again, to have children or to have more children.

You might get divorced, might get married (perhaps again).

All these events are inextricably more difficult to manage where you’re crippled by mortgage repayments.

Please don’t treat what we are experiencing now, as though it will last forever.

The problem is, history shows us that the Australian property market is incredibly resilient.

It’s hard to combat logic, when your peers are getting ahead by gearing up, when property buyers, real estate agents and the media continue to pump up the hype.

There appears to be a genuine lack of discussion about the challenges the property price growth poses in the future.

At times, when the Government is throwing everything and the kitchen sick at the economy, you do wonder if the house of cards has been built so high, that it cannot be allowed to fall down.

Against the backdrop of the fear of missing out and the desperation to buy a property, the following is less obvious:

• A genuine concern that future generations will be priced out of the property market.

• That the gap between house prices as a multiple of incomes has never been higher.

• A genuine concern that once the boom has passed, we will be left with a whopping headache and an even bigger mortgage, that becomes increasingly difficult to manage as interest rates increase.

• The government and the RBA literally will have their back against the wall if they need to increase interest rates in the future, knowing that future rate increases will test serviceability for the average Australia.

Logic shows that we should be setting ourselves up for a world of pain.

But the Australian property market seems devoid of logic at times, especially during a boom.

At this stage, only time will tell what the long-term implications are for the housing un-affordability crisis.