Its Over

Originally posted by 1ronnie: ↑

OoO, now that is an interesting question.

This is a time I think is quite frightening to be buying property as prices would be above reserve price. A good time would have been Q2 last year when the worst of the market crash aftermath did not happen.

But I think the system is flushed with cash that needs to go somewhere , and if equities can't provide much stability i.e experiencing lots of volatility, it would not surprise me that more $$ would go into properties.

Frothy is to be expected across all asset classes due to cheap money and inflation eating cash. Unless we experience a mortgage default crisis , we are unlikely to experience a property market crash. Mortgage default crisis can only happen if banks are laxed in their lending policies and if we have high unemployment. Unlike equities, properties do not get sold so easily or tradeable like stocks when we experience a crisis, most people having properties would just hang on unless they can no longer furnish their loan repayments. But with the advent of loan moratoriums , that helped checked a mortgage crisis to buy enough time for Governments to rescue. So we have already that precedent and Australia cannot afford to have a housing crisis, because banks would be in real trouble.

So the prospect of a market crash on property is IMO less so compared to equities because it is a less liquid asset. That may be a good thing with a less liquid asset but a less liquid asset also means you are more likely to get trapped....so if you buy a property on loan and can't furnish the loans because you lost cash flow (because you lose your job or income), then you could have a margin call on you. And that would be the worst thing.

Based on past precedents, the GFC and the Covid Recession, we have not have had any property market crashes despite equity market crashes , contrary to expectations. And unless we get ourselves into a sustainable double digit unemployment, it is unlikely we would get one, though small corrections could happen along the way.

Do I think property can go higher? I think so but if we see higher inflation ahead, mortgage rates may go higher and curb the exuberance so the going higher would probably be capped.

However, if it is a property to live in, as opposed to investment, and you have a long term horizon, it is better to own your own home than to rent.

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Hey 1ronnie, missed your thread the last few days.
Thanks for the well thought out answer.

So from your response it seems the key is whether we will experience a US style mortgage default crisis here.
Will try and keep an eye on key mortgage affordability indicators. It seems the ratio of household debt to income is very high now thus vulnerable to a small hike in interest rates.

And the so called loan moratoriums were essentially just deferrals. Whatever was owed was added to the loan balance + interest. I wonder if there will come a day of reckoning for all this pile of (unsustainable?) debt?

Plus immigration numbers have been hit hard by COVID so it really doesn't make sense this surge in property prices (other than the RBA stepping up monetary expansionary policies).