These are the 3 drivers of property prices & Unemployment isn’t one of them

Tim Boyle of Finalytics says that there are 3 key drivers of property prices.

These are:

  1. Supply – the rate of construction and the properties listed for sale on the market;
  2. Interest rates – the cost of borrowing; and
  3. Population growth – immigration, natural population growth (births minus deaths), and interstate migration.

Or, as depicted in his infographic:

These are the 3 drivers of property prices & Unemployment isn't one of them

What about unemployment?

People often state that the unemployment rate is critical, but this argument isn’t backed up by any hard statistics.

In fact the last couple of times the unemployment rate spiked housing prices soared the following year, as pointed out by Stuart Wemyss of ProSolution, Game of Mates author Dr. Cameron Murray, and others: Source: Tim Boyle, Finalytics

These are the 3 drivers of property prices & Unemployment isn't one of them
There’s also an enormous fiscal stimulus washing through, comfortably dwarfing anything we’ve seen in recent decades.
These are the 3 drivers of property prices & Unemployment isn't one of them

Boyle’s 3 drivers today

In that context, here’s what’s happening with Boyle’s 3 key drivers today.

Supply is extremely tight at the moment.

Dwelling construction is plunging towards 70-year lows and vendors aren’t listing either.

These are the 3 drivers of property prices & Unemployment isn't one of them

Source: CoreLogic

Lending rates, meanwhile, are at the lowest level in modern history.

These are the 3 drivers of property prices & Unemployment isn't one of them

This effectively allows borrowers to take on bigger mortgages, as I showed in my recent post on lending trends.

ANZ have just noted the same thing:

These are the 3 drivers of property prices & Unemployment isn't one of them

The big unknown factor at this stage is population growth.  Population

My base case expectation or scenario is that within the next few months the powerful interests such as the Property Council, Australia’s universities, the airlines, Tourism Australia, and big business at the top end of town will have forced the government’s hand to reopen the borders, albeit with a period of enforced quarantine.

As for the thesis that things will be totally different after COVID-19…well as a gallant but struggling home-schooler I reckon that’s total garbage!

People can’t wait to get back and out to spend, socialise, travel, go to work, and holiday again.

It’s just the way we’re designed, we’re pack animals.

These are the 3 drivers of property prices & Unemployment isn't one of them

And moreover, Australia will likely be seen as one of the safest and most desirable countries on earth in which to live.

That’s my view – but you can see what Tim Boyle himself has to say in this excellent article here.

investment property australia 2020
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Pete Wargent

About

Pete is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog


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