Our First Interest Rate Drop In Years! What It Means For Property Markets
The Reserve Bank of Australia has dropped interest rates for the first time in years. There are 2 things that DEFINITELY will happen as a result of this…
Two things that are bound to happen as a result of the Reserve Bank of Australia’s decision to drop interest rates. Number one, you’ll see a lot of people telling you to jump into the Sydney and Melbourne markets right now. Prices are going to rise and get in before it’s too late. Or number two, you’ll hear a lot of economists tell you that the drop in interest rates is actually bad news for the economy, so maybe you should reconsider your investing decision.
Hi, I’m Niro from Investment Rise and if you’d like to cut through the confusion and find out what the interest rate drop for the first move in interest rate in years could mean for our property markets, then I really hope you’ll stick with me because as I said earlier on, there’s bound to be a lot of conflicting information. You’re going to hear people telling you things from both sides of the spectrum, so let’s apply some common sense to what we think is going to happen.
Number one, we know that the Sydney and Melbourne markets have been dropping significantly over about the last 18 months to two years. Okay. The price drops in both Sydney and Melbourne have been the biggest in recorded history, so now that interest rates have dropped. What is likely to happen?
Well, the rate of dropping will slow down. Let me repeat that. The rate of prices dropping will slow down. Why? Because people who have been sitting on the sidelines will now want to jump in. Maybe they want to buy their own home, a lot of first home buyers are more than likely going to be, feel a lot more empowered and confident with their ability to get into the market right now as a result of rates dropping and expected to drop again. But does this mean that prices are going to rise dramatically? I mean what that would mean is that all these properties now that are sitting there vacant, Sydney and Melbourne have the highest vacancy rates on record, at least for the last decade and all these properties that are sitting there and haven’t sold are now are going to be snapped up.
All these people are now going to want to jump in and buy and we’re going to see greater demand than supply and that will drive prices up. But hold on. Where’s all this demand going to be coming from? Right. I mean if you think about it, what was a key factor that drove prices up between 2012 and 2017 in Sydney and Melbourne? Yes. Interest rates were low and were dropping and were kept low. Yes. But primarily it was buyers from overseas. It was overseas buyers. Right. I mean maybe you’ve been to an auction and you’ve seen an agent literally sitting there on the phone just taking bids from someone overseas and willing to outbid any local person. That’s not going to change. That’s not going to happen again right now. Okay. Because we still have all the lending restrictions in place for foreign buyers.
So don’t expect a quick turnaround. Yes. However, as a result of the drop in interest rates, there will be more optimism in the market. Yes. Or rather probably a more accurate way of saying it is less pessimism in the market. People won’t feel so bad. Yes. People who’ve been waiting for prices to drop will probably start thinking about whether now is the bottom or not.
But I still think a lot of these areas, prices will continue to drop further in Sydney and Melbourne because of the oversupply issue that we do have. Right. So what I think will happen is that yes, less pessimism in Sydney and Melbourne, prices will drop, but far slower than they have been over the last 18 months, which is a good thing, mind you, because we’ve had such major price falls in our two biggest markets, but I think what you’re going to see is that the momentum that some of our, I guess, second tier markets have developed over the last 18 months, the markets that have been starting to show positive signs of growth due to population growth, due to the infrastructure spend, due to the fact that they are in under supply.
So there’s more people, more demand for properties, more people wanting properties than available properties because of population growth. Those areas that had been growing sort of consistently, their speed, their momentum will now increase. So yes, property markets will increase in price, but make sure you do your research to work out which markets will start to move forwards. All right. I do not believe the Sydney and Melbourne markets are going to start their next major bull run like we had from 2013 to 2017, not at all, but I do believe that some of the other markets that are showing some signs of positive growth, yes, they’re going to have a really good run now going forward, especially as rates continue to drop as is expected, so do your research. If you’ve been hanging on the sidelines, yes, now is a great time to start looking in the market, but do your research and don’t just follow the crowd.
Don’t just say, okay, look we’re getting all excited and jump in and maybe buy something in Sydney or Melbourne. I’m not saying those markets necessarily are bad, but only certain suburbs will be good. Not all suburbs. Look at the vacancy factor. Look at the demand for property. Look at the infrastructure spend, the population growth. Look at all the key capital growth indicators. Go back and watch any of my past videos, I go into a lot of detail about them and just do your research. But yes, it is going to be a positive time for some markets going forwards in Australia. Your goal will be to find out which those markets are and then jump in whenever you feel ready.
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November 13, 2020
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