Table of contents
Is it time to be fearful or greedy in property? - featured image

Is it time to be fearful or greedy in property?

What should you do in the current "interesting" property markets?

Is it time to be fearful or is it the right time to be greedy?Woman Smashing The Word Fear With Her Hands

I know many investors are confused with the many mixed messages the media and many commentators are delivering.

On the one hand, we have just experienced a once in a generation property boom with the total value of the residential real estate in Australia increasing by more than $2 trillion in two years and the value of most properties around Australia increased by at least 20%.

On the other hand, the media keeps reminding us that inflation is upon us, interest rates are about to rise and this will cause our property markets to crash.

I've noticed two types of emotion in those interested in property:

  1. Last year FOMO (Fear Of Missing Out) struck as property buyers didn't want to be left behind, but that has now passed with buyers becoming more cautious.
  2. Now as yet big property markets in Melbourne and Sydney are slowing down at a time when all those property pessimists are talking about Real Estate Armageddon, FOBE is creeping in - Fear Of Buying too Early - home buyers and investors trying to time the market wondering "what if prices do actually fall significantly?"

It is said that the 2 most powerful emotions that drive markets are fear and greed.

In fact, master investor Warren Buffet advised: “I'll tell you how to become rich...Be fearful when others are greedy and be greedy when others are fearful.”

So today I'd like to give you my thoughts on this with a lesson from history...

Twenty-nine years ago, as Australia was working its way out of the recession we had to have, few would have thought of property as a good investment.

It was 1993 and interest rates had come down 3 per cent over the previous 2 years as the Reserve Bank tried to stimulate the economy and our faltering property markets.

By the way… this brought interest rates down to 10%, the lowest level they had been for 13 years.

Having just experienced the first Australian recession in a long time, consumer and business confidence was low, there were too many properties for sale, buyers were scarce and some properties, particularly in top-end suburbs, had plummeted in value.  

A few years earlier on Black Monday of October 1987, a stock collapse of unprecedented size hit Wall Street and the effects reverberated around the world.

Interestingly I remember that day well.

I can clearly picture in my mind that we were on holiday in Sydney when we heard the news and didn't fully appreciate the severity of the consequences.

However, while the stock market eventually recovered, the lumbering savings and loans industry in the USA (which financed many American homes) was beginning to collapse, leading to a property funding crisis that put the financial well being of millions of Americans in jeopardy.

In turn, the financial contagion that spread to the rest of the financial sectors led to a recession that hit other countries whose economies were previously healthy but were economically closely linked to the United States.

This included Canada, the United Kingdom, and Australia.

What was happening in Australia back then? buy a typical house in mid 1993 you would have paid around:

  • $173,000 in Sydney;
  • $138,00 in Melbourne;
  • $121,00 in Brisbane;
  • $102,000 in Perth;
  • $156,000 in Canberra;
  • $110,00 in Adelaide
  • $96,000 in Hobart and
  • $132,000 in Darwin.

But over the subsequent 3 decades, the value of many well-located capital city properties around Australia quadrupled, underscoring the wealth of many of today’s Baby Boomers and creating significant property empires for those who took property investment seriously. Property Market

Interestingly today’s environment reminds me of those times 29 years ago - we are working our way out of the ravages caused by living in a Covid Cocoon.

And just like then, many of the same arguments are being floated by commentators explaining why property values can’t keep increasing as they did over the previous three decades.

I accept that much of the gains over that time were related to structural changes that will not be repeated.

The two significant structural events that caused the massive rise in property values over the last three decades were: 

  1. The Reserve Bank kept inflation within a narrow band meaning interest rates could fall at a time when time banks became deregulated and this allowed new non-bank lenders like Aussie John Symond to make cheap finance available for borrowers and over time interest rates kept falling and credit was easily available.
  2. At the same time wages grew and there were more two-income households. This allowed more Australian families to buy new homes or upgrade their existing homes as their families grew.

These factors won't carry our markets forward in the future, in fact, they played out a few years ago and haven't been relevant for much of the last decade. Instead...

  • We are currently experiencing volatile geopolitical conditions around the world.
  • Inflation is creeping up around the world causing interest-rate to rise overseas, and this will eventually occur here.
  • Low-interest rates and pent-up demand pushed property values to a level where affordability issues are now going to become a concern.

Here are 10 reasons not to be fearful about the current property market

  1. The average Australian is wealthier than ever.
  • It’s been suggested there is a war chest of $230 Billion in household savings.
  • It is likely to be even more money set aside in offset accounts as Australians have been paying down their mortgages faster than required.
  • Aussie super funds and shares portfolios are performing well.
  • Overall the total residential property market is worth close to $10 trillion and there is only $2 trillion worth of loans owing against all residential real estate.

2.  There’s no evidence of mortgage stress for the majority of borrowers.

  • Half of all homeowners have no mortgage - that's because they paid off their homes many years ago.
  • Many homeowners have 30% more equity in their homes than they had 2 years ago.
  • ANZ bank suggests that 70% of their borrowers are ahead in their mortgage payments. Mortgage
  • It is estimated that $1.37 billion is sitting in offset or redraw accounts which would act as a buffer.
  • Sure some first home buyers are born to the hilt to get into the property market, but as long as they keep their jobs, they would have rather eat Maggi Noodles than sell up their homes and cause a property market crash.

3. Interest rates are low and even when they rise, it will take 5 x 0.25% rises in rates to bring them back to where they were 3 years ago.

  • And there was minimal mortgage stress then.
  • The RBA doesn't want to crash the property market – it just wants to move interest rates from stimulatory levels to neutral levels.
  • The Reserve Bank recognises the importance of the wealth effect of rising property values. It knows if people feel comfortable about the value of their home they will spend money which encourages economic activity while falling property values do the opposite meaning the RBA is unlikely to instigate multiple interest rate increases sufficient to spook the market.

4. Banks have been very conservative in stress testing loan applications and most 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 being brought in would have considerable equity in their properties.

5. Rising interest rates did not make the market fall in the past.

  • Interest rates rose over a 6-year period commencing in 2002 and again in 2010-11 after the GFC yet the value of well-located properties continued to increase in most years that interest rates rose.
  • Sure, many first home buyers have extended themselves and they will be the most vulnerable, but they’d rather eat Maggi Noodles than sell up their homes. Interest Rate

6. There is a shortage of supply of good properties at a time when there is still ongoing demand and more properties are being purchased the new properties being listed on the market.

7. Overseas Migration is going to pick up. Melbourne and Sydney will be the main beneficiaries of this.

8. The same “experts” who are currently predicting that property markets will crash in 2023 are the same ones who have made multiple incorrect Doomsday predictions over the last couple of years.

9. Australia’s economy is growing strongly and will continue to do so and anyone who wants a job can get a job.

  • Unemployment is at record lows and he's likely to keep falling further.
  • Our export income will improve because of the Russian Ukrainian crisis.
  • Our tourist income will improve now that our international borders are opening.

10. There’s a shortage of rental properties.

  • Australia is experiencing a rental crisis and rents will increase strongly this year, bringing even more investors back into the market.
  • Rental vacancies have continued to decline over March from already low levels.
  • The national weekly median asking house rent has increased by 12.4% over the past year to $509, with the March house vacancy rate declining to 1.2%.
  • Although unit rentals haven’t recorded the extraordinary increases reported by houses over the past year, annual rents have nonetheless risen strongly.Asking Rents Houses

Asking Rents Units

Why our property values are guaranteed to increase over the long term

Having been involved in the property markets for almost 5 decades I'm a realist and understand property cycles.

I don't expect double-digit growth in most property markets this year, however, I'm not after short-term gains.

I'm a long-term investor and I still see strong underlying long-term fundamentals for our property markets.

house propertyWhile it’s important to understand that while many factors like interest rates, supply and demand, and market confidence, affect a country’s property prices in the short term, in the long term prices are driven by two main factors:

  1. Population growth - Australia has a business plan of growing our population to 40,000,000 by the middle of this century. That means for every three houses currently in our suburbs, one extra house will need to be built. And...
  2. The wealth of the nation - being a knowledge-based society, Australians will be wealthier than most other countries and able to afford to pay more for their houses in the long term

And this is positive news for the long-term growth of property prices.

The fact remains that as long as people keep having children and residents from other countries seek to settle on our shores, Australia’s population will keep growing at a rate faster than almost every other developed nation.

city family urban suburb

Australia's population was forecast to grow to 30 million people by 2030.

While we may now only grow to 29 million people in that timeframe, that's still a significant increase in our population over the next decade.

And there are suggestions that our population could reach 40 million people by 2050.

Until recently 55% of our population growth was due to immigration and, in general, these are well-educated people (particularly from China and India) who are in their twenties and thirties which is the family formation stage of their lives.

Fact is: we are going to need whole cities of new immigrants to replace the 5 million or so Baby Boomers who are going to leave the workforce over the next 15 years.

These new residents will boost our country’s economic well being through the revenue raised from income taxes and all the goods and services they will buy.

And yes, that includes property.

Of course, this means with more and more of us wanting to live in the same four big capital cities (but particularly Melbourne and Sydney which are the economic powerhouses of Australia), and even in the same suburbs of those capital cities, our old friend the supply and demand ratio will keep pushing up the value of well-located inner-suburban properties.

Inevitably this will make property unaffordable for some who will remain tenants, however, others will be able to afford these higher-priced properties.

It also means that apartments and townhouses are likely to become the style of housing in strong demand as more people swap their backyards for balconies and courtyards; partly because of cost but also because of lifestyle choices.

They'll be trading space (big backyards) for a place (being in the right location).

And now after learning lessons from Covid, our neighbourhood will be more important than ever – something people call the “Third Place.”

Our first place is home and our second place is work or the office, but during Covid, for many around Australia, the ability to go to a third place was taken away.

It may be a favourite café, a gym or a place of worship and even local shops and pubs. Economic growth

They missed that feeling and connection to others, having an outlet to take a break from family or colleagues for a short period to reset.

A gym or exercise centre has been substituted for a favourite walking or cycling path with green space and fresh air.

So, all these features combined will be a major requirement and will create huge demand moving forward.

These are all features of the 20-minute neighbourhood, that will be built around convenience.

Wouldn’t it be nice if all the things you need in a day would be just a short walk away?

In urban planning circles, it’s a concept known as the 20-minute neighbourhood.

Understanding these factors forms part of the research data we use at Metropole to help our clients find investment-grade properties or A grade homes for owner-occupation.

If you’d like to get the independent, award-winning team at Metropole on your side to help you through the maze of mixed messages about the property market, please click here and leave us your details or call us on 1300 METROPOLE

The bottom line:

While nothing in life is guaranteed, if like me, you are confident that Australia has a prosperous future, and you agree that our population is going to keep increasing and that most of us are going to want to live in much the same parts of our lucky country; you can understand why I see a strong long-term future for our capital city property markets.

Sure there is a risk in buying property, but don’t forget there is also a different risk in not buying!

About Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit

Glenn thanks for leaving the detailed comment It's really interesting that over the 20 years I've had a high public profile people like you have been so worried about our property market, yet the the median price of well located property just kept g ...Read full version

0 replies

I guess if you are a real estate agent /real estate sales this is HEAVEN at the moment But if you are normal hard working lower to middle income Australian This Real estate boom is a NIGHTMARE Its great if you sell mums old home in Sydney for 2 ...Read full version

1 reply

Thanks Stuart

0 replies
9 more comments...


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts