no boggle eyed spittle spraying please, page-13

Well let's move on.

There are a number of things to cover here. Let's start with affordability and break it down into two categories:

1. Affordability equation changes
2. Affordability equation does not change or gets worse.

1. Between now and the end of the year interest rates will most likely remain stable and any fluctuations will be relatively minor. By the end of this year (Oct/Nov) interest rates will drop and keep dropping. This is in keeping with our delayed reaction to US interest rates moves. When this happens, affordability will change.

That is just one change that is coming. The second change which is inevitable in a tight labour market is increasing wages. Of course some will benefit more than others but the average wage (which is what doomsayers use) will be increasing. This will upset the RBA but is inevitable.

They will be constrained from rising rates due to the usual reason, a too-strongly rising Aus dollar which will be strangling industries like manufacturing, tourism, and mining.


2. Let's say affordability does not change as I have described (no chance in my view but let's pretend for a minute).

If rates do not drop and wages do not increase then what happens?

Let us pretend that you are right and the price of property cannot rise further. I think that is farcial but let's pretend and see what happens.

Population increasing thanks to many factors including immigration, intra-state movement from rural areas to metro areas, home-leavers etc.

All these factors are increasing demand for land and houses. Property prices not rising (thanks to the restriction we have artificially created) means that less money is attracted to the property sector so less properties available for rent.

What happens? A greater number of people demanding the same supply of a resource what will happen? What IS happening at this moment?

Of course rents will rise.

At some point in time rents are costing the same, if not more, than it costs to service a loan on your own home. What happens then?

The buying which was not being done by investors is now done by home buyers and when they start buying what happens?

This is all based on the idea that prices for properties will not rise and therefore investors will be less inclined to go there. I have already stated this is farcial so what will happen?

I will address that in my next post.

(More to Come)