One of my children’s favourite stories was the Very Hungry Caterpillar.
No matter how many times they heard the ending; there were always gasps of amazement when the caterpillar changed into a beautiful butterfly.
What seemed like a miracle to them is actually a normal part of the life cycle of many insects, but it took me a long time to realise that this is also how the property market often behaves.1
Many cities such as Sydney and Melbourne are like very hungry caterpillars, right now.
They devour their way through our funds, leaving us negatively geared with prices stagnant or falling.
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We call these buyer's markets, where vendors are competing against each other and purchasers are scarce.
But like the butterfly triumphantly emerging from its cocoon, these markets will suddenly turn into things of beauty with booming prices and soaring rental yields.
They may appear to be changeless like a caterpillar’s cocoon, but hidden from view, the housing market stats are telling us that Sydney, Melbourne and Brisbane, in particular, are generating steadily rising numbers of potential buyers and reducing stocks of A-grade properties.
When interest rates peak and inflation come under control demand will soar ahead of supply and housing prices will take off, just like a butterfly triumphantly taking flight.