The roller coaster years are over

After the largely unanticipated COVID-19 property market boom, we were hit with twelve successive interest rate hikes, sapping buyer confidence and demand.

Since then we’ve witnessed six months of strong price growth in virtually all housing markets, despite those high interest rates.

I'll explain why these events took place and what the future holds for property markets.

Like any commodity, housing prices are subject to the laws of supply and demand which can be stimulated or curtailed by the amount of money that banks have available to lend and by changes in the cost to borrowers.

It was the unprecedented changes in interest rates and the amount of money that banks had available to lend that led to the last three property price roller coaster years.

It all started with the onset of the pandemic in early 2020 when interest rates dramatically fell and the banks were awash with billions of freshly minted helicopter money.

Buyer demand started to outpace supply and housing prices began to rise in 2021, rapidly escalating by early 2022, when borrowers were hit with a record number of interest rate hikes as the RBA tried to slow down inflation.

Buyer and lender confidence slumped and housing prices fell, but as soon as interest rates stabilised, prices began rising again.

The changes in interest rates and the effect this had on housing prices are shown in this graph.

Where housing prices and interest rates are heading

The graph also indicates where housing prices and interest rates are heading, because rather than focus on the wild movements of the last three years, we can more accurately forecast housing price and interest rate performance by looking at the trends.

What the two trend lines shown on the graph for interest rates (red) and housing prices (black) reveal is that interest rates and property prices are now both exactly where they would be if the Covid pandemic had never occurred.

Housing prices and interest rates are back on trend

After three wild years, interest rates and housing prices are now back on trend and this assures us that any future interest rate increases will be minimal (if they increase at all) and also that the current rate of house price growth is set to continue.

Of course, such trend-based predictions can only work if the underlying dynamics don’t change, but with the rate of inflation slowly falling while housing demand continues to outpace supply, they are highly likely to be accurate.

It looks as though we have finally emerged from three roller coaster years and are entering a welcome period of stable interest rates and consistent housing price performance.

About John Lindeman John Lindeman has well over a decade of experience researching the nature and dynamics of various types of assets at major data analysts and is a leading property market researcher, author and commentator. For more information visit Lindeman Reports.