Monday, July 29, 2013

On Falling Interest Rates Driving a House Price "boomlet" in Australia

The Absurdity of Australian Property
So on this basis, you would argue that Sydney has moved ahead of its fundamentals over the past 12 months while Melbourne has actually underperformed. But with lower interest rates, and the prospect of more cuts to come, you could also argue that Sydney’s strong house prices reflect the discounting of a lower interest rate environment.

On the other hand, you have to ask yourself why interest rates are expected to fall. It’s because of a slowing economy. It’s because of fears over the growth prospects of our largest trading partner, China, which hasn’t even began to reform its hopelessly imbalanced economy yet.
Looking at it from a psychological perspective, you could argue that buoyant activity in the market is a result of a ‘throwing in the towel’ mentality of previously reluctant buyers, as well as continued involvement from the legion of property players in Australia who have never experienced a downturn, and who believe we will never see one again.

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