Bravery may be needed to earn house price freedom as prices fall

A booming housing market has delivered huge wealth for many Australians, but when things head south, new thinking is needed.

Peaking Australian home prices have made some real estate buyers nervous about putting huge chunks of money into something that may lose value soon.

Halfway through March, the latest data from CoreLogic shows home value increases for the five biggest capital cities were generally flat for the month, after Sydney and Melbourne didn’t do much in February either.

There’s a growing chorus of commentators calling the top of the market, while others say buyers are still clamouring to get their foot in the door.

It requires bravery to spend hundreds of thousands of dollars – in many cases more than a million – on something that’s value may well go backwards over the next year.

Early this month an analysis by RateCity of Commonwealth Bank forecasts pointed to median home prices falls by late 2023 across all capital cities – ranging from $38,000 in Adelaide, $41,000 in Hobart and $42,000 in Brisbane to $98,000 in Melbourne and $146,000 in Sydney.

But there’s a sure-fire way to be brave in this environment, and you don’t have to put on blue face paint, a kilt and Mel Gibson’s Braveheart Scottish-with-a-hint-of-Mad-Max accent.

All you have to do is think in terms of 10-year time frames.

I’ve never found a period in any capital city where house prices didn’t rise over a decade, and borrowers should remember that the stellar price growth of the past two years is not normal.

If facing falling property prices, channel Braveheart’s Mel Gibson for strength in adversity.

We’ve had record low interest rates, a pandemic keeping people focusing on home rather than jetsetting overseas, and huge wads of government stimulus money flowing into households.

That’s a recipe for growth in anyone’s books.

But if interest rates rise sharply as some are predicting, the economy gets hit by soaring global inflation, people start losing jobs, and war fuels further gloom, that’s a recipe for house price haggis instead.

Fun fact: Britannica.com says haggis is Scotland’s national dish and is a “pudding” comprising liver, lungs, heart, onion and oatmeal packed into a sheep’s stomach and boiled. Mmmmmm. What’s for lunch?

If you can buy and hold for 10 years, you will almost certainly come out on top in the property game.

Nobody really knows if we are heading for heavy falls anyway. The Commonwealth Bank predictions may seem scary, but CBA also forecast potential falls of up to 30 per cent when Covid first hit in 2020.

It’s been sunshine and lollipops since then for anyone lucky enough to own real estate.

And there are other factors that could underpin our property prices. Australia has had no immigration for two years, so we’ll soon have hundreds of thousands of new arrivals chasing the great Aussie dream of home ownership.

We are also seen as a safe haven from all the upheaval in Europe, which is a reason why the Aussie dollar has climbed during the Ukraine crisis and demand for our commodities in surging.

Nobody can predict the future, but focusing on the long-term will deliver property owners something every Braveheart wants for their financial future: Freeeeeedommm!

Originally published as Bravery may be needed to earn house price freedom as prices fall