Housing Market – Way More Ups Than Downs
Housing market analysis of the last twenty years show a rise of over 360% according to Corelogic. The biggest fall, less than 7.5% showing residential investment property works over the long term.
Across the combined capital cities, dwelling values have increased by 346.4% over the 20 years to April 2017. In the two periods in which values have fallen, capital city dwelling values fell by -6.1% between March and December 2008 and they fell by -7.4% between October 2010 and May 2012. Downturn refresher: what happens when prices start falling? –
What does it all mean for the housing market?
We all know that the housing market fluctuates over time. It is like any other market. Cameron Kusher from Corelogic doesn’t think the the housing market is getting signals of a big drop. He does seem to be saying that we should keep watching the government. They may overeact in taking the heat out of the housing market.
This analysis serves as a reminder that although capital city dwelling values have largely increased over the past 20 years, they are not immune from potential declines. The impetus for these previous declines have been external economic shocks and the stimulus of low interest rates and grants to first home buyers being removed. We aren’t currently seeing any economic shocks of the size of the 2008 financial crisis but we are seeing unemployment rate at similar levels to 2008/09 and historically high levels of underemployment. The market is also slowly seeing historic low mortgage rates moving higher against a backdrop of record low wages growth and record high household debt. Depending on how much mortgage rates are increased (noting that this is not happening due to the RBA) home owners should be aware that it could lead to a slowing or even some potential falls in dwelling values. Via blog.corelogic.com.au
Tools to protect against housing market variations
Investment property needs to have a strategy that protects you against short term variations in the housing market. There are a number of things you can do but very few make sense over the long term.
- Put money aside in a separate “rainy day” account
- Pay a bigger deposit
- Have a line of credit facility with your bank
All of these will significantly lower internal rate of return on your investment property. The IRR as it is known is the return on cash you have actually put into your investment. The less cash you put in the higher your return.
We have developed the finest protection against housing market changes. The MAcH 10 long term residential lease. You have no vacancy and a blue chip tenant for a minimum of ten years.
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