The property market is going to crash!<\/strong><\/p>\n 2021 was a year like no other – prices boomed creating new records and as the value of Australia\u2019s housing market skyrocketed, the collective wealth of homeowners jumped by over $2trillion despite the pandemic.<\/p>\n And sure, it\u2019s clear that we won\u2019t see the same level of overall price growth in 2022.<\/p>\n But a housing market crash<\/a><\/u>?<\/p>\n I don\u2019t think so.<\/p>\n Here are 10 reasons why.<\/p>\n CBA economists estimate that during lockdowns households have socked away some $230 billion in excess savings<\/a><\/u>, leading to a massive war chest of cash and deposits.<\/p>\n Not only does the average Australian have significant savings, surging property prices means many homeowners have 30% more equity in their homes than they had 2 years ago.<\/p>\n Combine these 2 things with a strongly performing superannuation and shares portfolio and the average Australian is now wealthier than ever.<\/p>\n At the same time, Australia\u2019s total residential property market is worth close to $10 billion, but with only $2 billion worth of loans owing against all residential real estate.<\/p>\n So even if some homeowners do begin to struggle to make mortgage repayments or even default, the risk for Australia\u2019s entire residential property market is still very low.<\/p>\n In reality, half of all homeowners have no mortgage at all.<\/p>\n And those who do have a mortgage are well ahead in their mortgage repayments – it is estimated that a total of $1.37 billion is sitting in offset or redraw accounts.<\/p>\n Lower mortgage rates have been a significant driver of the property increase in prices seen over the past couple of years.<\/p>\n Since the onset of the pandemic, the RBA<\/a><\/u> has provided significant economic stimulus and support and has repeatedly stated that they don\u2019t expect conditions for a rate increase will be met until 2024.<\/p>\n And the banks suggest that property owners could face higher mortgage repayments as early as June<\/a><\/u> as financial markets and economists warn a rapid run-up in inflation could force the Reserve Bank<\/a><\/u> to lift official rates above 2% within the next 12 months.<\/p>\n But if you think about it, even when rates do rise it will take 5 lots of 0.25% rises to bring them back to where they were 3 years ago, and there was minimal mortgage stress then.<\/p>\n When you borrow money, the bank or lender has a responsibility to ensure you have the financial capacity to service the mortgage repayments now and into the future.<\/p>\n Each bank and lender has its own stress test assessment<\/a><\/u> based on the bank\u2019s own appetite for risk, which is why your borrowing capacity can vary significantly from one lender to another.<\/p>\n On top of the assessment rate, the bank will also apply certain other factors and will load your existing (other) loans by a buffer, they account for all your incomes including wages and rental income(s), and they also include the limits on all of your credit cards<\/a><\/u>.<\/p>\n The lender will also account for the number of financial dependants you have in your household, and apply a cost of living, which is the living amount used by the bank and may or may not be the same as what you and your household actually spend.<\/p>\n And if you\u2019ve tried to borrow the money you\u2019d know that the banks are incredibly conservative with stress testing loan applications.<\/p>\n That means that most mortgage owners who borrowed over the last couple of years will be able to handle the interest-rate increase of 2.5 or even 3%, and those who borrowed prior to these stricter requirements would have considerable equity in their properties.<\/p>\n The thing is\u2026 this isn\u2019t the first time we\u2019re heading towards rising interest rates.<\/p>\n Rates have risen before and it didn\u2019t make the property market crash then, so why would it now?<\/p>\n In most of those years that interest rates rose, property values also increased.<\/p>\n You see\u2026 how a particular property performs depends on a combination of factors – of which interest rates are just one.<\/p>\n Sure, many first home buyers have extended themselves and they will be the most vulnerable, but they\u2019d rather eat Maggi Noodles and sell the entire contents of their property than sell up their homes.<\/p>\n According to the latest National Housing and Finance Investment Corporation (NHFIC) state of the nation report<\/a>,<\/u> Australia could be in for a dire dwelling shortage ahead.<\/p>\n This is particularly the case as the economy and net overseas migration recovers thanks to a newly opened border, the demand for new households will outstrip supply<\/a><\/u>.<\/p>\n And such a supply shortage will act to put a floor under house price falls and only lead to increased prices going forward, with no property crash in sight.<\/p>\n From the 21st of February 2022, the Australian Government opened Australia\u2019s borders<\/a><\/u> and welcomed double-vaccinated tourists and visa holders from around the world.<\/p>\n The latest overseas arrival data from the ABS shows total arrivals to Australia began rising sharply weeks earlier, as international students, permanent residents, and Australian citizens were welcomed back.<\/p>\n And those migration numbers are only expected to continue climbing.<\/p>\n As a result, we\u2019re already seeing a pickup in demand in the rental market, once-abandoned central-city properties, and also the unit market.<\/p>\n Remember the Debt Bomb?<\/p>\n It didn\u2019t explode.<\/p>\n Remember the fiscal cliff we were supposed to fall off?<\/p>\n That didn\u2019t happen.<\/p>\n Unfortunately, these commentators have a track record of getting their property market predictions wrong, underestimating the strength and resilience of our housing markets.<\/p>\n Economic activity in Australia contracted sharply in late 2021 due to the lockdowns associated with outbreaks of Covid-19\u2019s Delta variant.<\/p>\n But the RBA forecast a rapid bounce back<\/a><\/u> in domestic demand in December and March quarters as restrictions are further eased.<\/p>\n By mid-2022, the outlook is broadly in line with the pre-Delta recovery path.<\/p>\n Put simply, Australia\u2019s economy is recovering, and it’s recovering well.<\/p>\n At the same time, Australia\u2019s income will improve thanks to renewed tourist spending and also the Ukraine conflict<\/a><\/u>.<\/p>\n That\u2019s because the Ukraine conflict, thanks to the disruption and threats to the supply of energy, industrial and agricultural commodities, and increased demand for metal intensive defence goods, is providing a further boost to commodity prices.<\/p>\n This is particularly good news for commodity producers like Australia and further evidence of a strongly performing economy.<\/p>\n In fact, the nation is facing a chronic shortage of homes available for rent.<\/p>\n Similarly, a shortage of rental apartments is also developing, and will only get worse over the coming year.<\/p>\n Opening the international borders also has put additional strain on an already tight rental market.<\/p>\n An influx of migrants will likely affect Sydney<\/a><\/u> and Melbourne<\/a><\/u> in particular as these are the most popular tourist destinations.<\/p>\n But these new figures are evidence yet again that we\u2019re unlikely to see the property market crash.<\/p>\n While rental demand is surging and supply remains scarce, prices will only continue rising further, bringing more investors back into the market.<\/p>\n So there\u2019s really no need to lose sleep or worry about the value of your home or investment property.<\/p>\n Don\u2019t get me wrong\u2026 I\u2019m not suggesting the value of properties always goes up \u2013 far from it.<\/p>\n However, there is no property crash in sight.<\/p>\n ALSO READ: [Podcast] When will the property market crash? With Stuart Wemyss<\/a><\/strong><\/p>\n![\"Market](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2022\/03\/market-crash-300x200.jpg\")
How many times have we heard that one recently?<\/p>\n1. The average Australian is wealthier than ever<\/span><\/h2>\n
![\"003\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2022\/03\/003-4.jpg\")
<\/a><\/p>\n2. No sign of mortgage stress for the majority of borrowers<\/span><\/h2>\n
![\"Mortgage](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/07\/mortgage-featured-300x177.jpg\")
There has been a lot of talk about the risk of mortgage stress<\/a><\/u>, and while homeowners in some particular areas – mainly in certain areas of Sydney and Canberra where an entry-level home represents more than 30% of an average income – the percentage of these homeowners in the total market is still low.<\/p>\n3. Interest rates are still low<\/span><\/h2>\n
![\"Low](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/05\/low-interest-300x161.jpg\")
But the likelihood of a cash rate increase moving forward has increased significantly.<\/p>\n4. Banks are conservative with stress testing loans<\/span><\/h2>\n
5. Rising interest rates didn\u2019t make the market fall in the past<\/span><\/h2>\n
![\"Interest\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2022\/03\/interest-300x200.jpg\")
Interest rates rose strongly for a 6-year period from 2004 to 2008 and then again from 2010 to 11 after the Global Financial Crisis.<\/p>\n6. Dire supply shortage ahead<\/span><\/h2>\n
![\"Property](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/09\/property-supply-300x225.jpg\")
Data shows that while the housing supply<\/a><\/u> may appear healthy in the short term, there is in fact a major supply crunch on the horizon.<\/p>\n7. Overseas migration is going to pick up<\/span><\/h2>\n
![\"Intrstate](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/08\/intrstate-migration-300x225.jpg\")
Eligible visa holders can come to Australia without a travel exemption or quarantining, and concessions are being granted to skilled visa holders in order to incentivise them to stay in the country for longer.<\/p>\n8. \u2018Experts\u2019 routinely get it wrong<\/span><\/h2>\n
![\"House](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2015\/09\/property-dynamite-boom-statistics-data-house-market-300x183.jpg\")
It\u2019s worth remembering that the same \u201cexperts\u201d who are currently predicting that property markets will crash in 2023 are the same ones who have made multiple incorrect \u201cDoomsday\u201d predictions over the last couple of years.<\/p>\n9. Australia\u2019s economy is strong<\/span><\/h2>\n
![\"Economy](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/04\/economy-australia-300x169.jpg\")
This setback delayed but not derailed the economic recovery that was underway in the first half of the year.<\/p>\n10. Australia is on the verge of a rental crisis<\/span><\/h2>\n
![\"Rent\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2022\/03\/rent-300x150.jpg\")
While the pace of house price growth has been slowing, rental growth has strengthened with vacancy rates around the country at the lowest they\u2019ve been for a long, long time.<\/p>\n![\"Housing](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2022\/02\/housing-market-300x225.jpg\")
Domain\u2019s data shows that the national vacancy rate continued its downward trend, now at 1.1%, which is the lowest seen since Domain records began in 2017.<\/p>\n![](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2020\/03\/Machael-author-ava-150x150.jpg\")
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