We are in the midst of a market correction – that is clear.
Let me recall the two prior corrections and help you navigate this one.
In 2007 – an event called the Global Financial Crisis hit – it was caused by poor lending standards (with best of intentions) in the USA. Some US banks collapsed and the effect spread worldwide. Credit became hard to get. Central banks lowered interest rates to assist in finding a way out – by 2012 there was a version of life that was back to normal.
In 2015 – the Australian banking regulator determined that investor lending, especially Interest Only lending was too high, so they “tweaked” interest rates upwards – making both investor lending and interest only lending more expensive. Investor lending pulled back, but by and large it was a successful intervention with the correction amounting to a slight pause. By 2017 it was largely forgotten – absorbed into a new way of doing things.
In 2020 – Covid hit – worldwide there was financial panic about lockdowns, unemployment and a housing crisis if people en masse defaulted. Governments lowered interest rates to emergency lows, paid people to stay at home (Job Keeper) and to the surprise of all – the housing market took off. People turned cheap money and the desire to work from home into a housing boom that has essentially lasted until now. It was the feared correction that never happened – and in fact went the other way.
In 2026 – the commonwealth govt – having given reassurances in an election that they would NOT do this, decided that they needed to remove investors from an overheated market. The logic being that if you essentially remove one third of all transactions, that prices might cool and owner occupiers might be assisted. The political backdrop of course is extremely high immigration and a housing shortage.
Although contentious, there are early signs that the changes are having a marked effect. House prices are decreasing and the number of transactions has slowed markedly.
The market was caught by surprise – and it’s not yet clear where this will end up.
In my opinion, based on past events – if you desire less of “something” then market forces will push the price of that “something” up
That “something” is rental properties. So, although it is only my opinion, despite the political assurances that rent will only go up marginally, there is enough evidence already to suggest that rent will jump markedly.
So – what to do:
If you are a first home buyer – it’s always a good time to look – just be wary that with a small deposit – you might buy something, have the value of your house decrease and give you a loan that is bigger than your house value. Make sure you buy something you want for a long haul, because falling values will make it almost impossible to either refinance or shift house.
If you are an owner occupier and want to shift – it’s a good time to do so – but you MUST sell first and be certain how much you have to put towards the next. De-risk the transaction by selling now and buy into the falling market. That’s just sensible.
Investors – there are two thoughts to consider
Eventually when prices fall far enough, and rents go up high enough, then the numbers come back in favour of buying a rental property. It will be positively geared from day 1. So, the loss of negative gearing is not relevant. That day is still in the future.
OR
Buy and build new… and here I want to give you an intriguing current example…
Clients purchased land for $315,000 and expected construction to cost around $250,000.
Building costs ultimately rose to $510,000, taking their total debt to $825,000.
The completed property is now rented for $850 per week and has recently been valued at $1.05 million.
New builds can still be negatively geared, and the higher rent being achieved is partly because of this surprise government intervention.
The need to invest for your future has not changed. If property remains part of your strategy, current conditions may create opportunities—but success will come from careful selection, sound numbers and a long-term plan.
Property is still a very secure pathway to create wealth. Talk to me about how I can tailor a strategy for you.
Call or email me anytime for help – it’s what I’m here for.
Alan Heath
alan.heath@askalanheath.com.au