Barefoot Investor’s expert tips house prices could potentially slump another 10pc

Scott Pape talks to one of Australia’s top money managers who predicts we’re in for more pain as the RBA hikes rates three more time and property prices potentially slump another 10 per cent.

The Reserve Bank (RBA) is in full arse-covering mode.

They had one job to do: keep inflation (that is, prices) from rising out of control … and they failed.

And, now inflation is running rampant, the RBA has no other option than to keep jacking up rates each month to try and bring it down.

Yet it gets worse.

As a result of their previously terrible forecasts (“no rate rises until 2024 at least”), right now many Aussies find themselves paddling on a boogie board.

And this year they’ll look up and see a tidal wave approaching them: the fixed rate period is about to end for one in four home loans … causing their repayments to go from 2 per cent to 6 per cent (or higher).

Wipe-out!

Again, despite all this, the RBA has to keep hiking.

The current thinking is that the RBA will continue pushing rates higher until something snaps in the economy and forces them to paddle in the foam for a while.

So, the $64m question is: what will break, and when will it be?

To find out, this week I decided to talk to one of the few experts who accurately predicted both the Covid boom and the subsequent fall in the property market: Christopher Joye, the founder of Coolabah Capital, who manages $7bn of fixed interest assets.

“So when do you think the housing market will break?” I asked.

Coolabah Capital’s Christopher Joye expects property prices to fall another 5 per cent to 10 per cent.

“What do you mean ‘when’? It’s already breaking!” he told me.

“Across the five capital cities, index prices are down 10 per cent right now, and they’re falling at more than 1 per cent a month. So we are one month away from the biggest losses on record in 40 years.”

Back in October 2021 – before the RBA had started hiking – Joye stuck his neck out and suggested that property prices would fall between 15 per cent and 25 per cent because the RBA would be forced to hike.

Today, he has three forecasts:

First, he believes the RBA will hike three more times before they pause and paddle.

Second, the impact these rate rises will have on the economy will be widespread and painful.

(I agree.)

Finally, property prices will continue to fall at least another 5 per cent to 10 per cent, which would be smack bang in his original forecast.

Look, it must be said that I have no crystal ball, and neither does anyone else.

Still, even a grommet in floaties understands there had to be consequences for going on a borrowing binge when rates were at all-time historical lows. This year we’ll find out just what those consequences will be.

Surf’s up!

Tread Your Own Path!

My Sister is a Leech

Hi Scott,

My older sister is 41 and still heavily dependent on my retired parents. She recently lost her job and has no savings, and also has mental health issues. My parents keep bailing her out when she runs out of money, but I’m concerned they are now using their retirement funds for this. She won’t take steps like reading Barefoot to help her out of her financial funk, and when she does have money she blows it on takeaway food and online shopping.

How can my parents stop enabling her and help her become financially independent at such a late age?

Tanya

An old Holden Kingswood.

Hi Tanya,

Here’s how I’d look at it:

Your parents and your sister are in a beaten-up old Kingswood on a long, bumpy drive.

None of them are paying any attention to where they’ll end up … they’re just glad the old banger keeps on keeping on.

You’re not in the car with them, Tanya.

So what can you do?

Three things.

First, show them where they’ll end up: your parents’ money will eventually be gone (even if she gets an inheritance after they pass) and your sister will likely be stone cold broke.

Second, offer to help your sister help herself (again), perhaps by referring her to a financial counsellor or working through the Barefoot Steps with her.

Finally, let everyone know that you will not be taking your parents’ place in the driver’s seat when the old banger runs out of juice!

Who You Gonna Call?

Hi Scott,

My partner and I are looking at combining our insurance now we are moving in together. He has always used an insurance broker, I never have. He says it gives him peace of mind in case something happens, but I don’t know if I can justify paying an extra $250 a year. Are brokers worth it?

Gabe

Insurance brokers can help with claims management.

Hi Gabe,

So this is controversial. However, like your partner, I get almost all my insurance through a single insurance broker, who charges me a commission.

Yes, I pay a bit more than I would going direct. Yet, as someone who’s lost a home, crashed multiple cars, had flood damage and more (you name it, I’ve claimed it), I’ve found that insurance is all about claims management.

And when something goes wrong my broker really earns his money. I just pick up the phone, call him, and let him sort everything out. Reading policies, understanding what I’m covered for, talking to insurance companies, sorting replacements, handling claims ‒ he does it all for me.

However, only you can decide whether you’re willing to pay the extra ‘insurance’ for claims management.

New Vanguard Kids’ Account

Hi Scott,

Vanguard has recently released a new product, the Personal Investor Kids account. It starts with as little as $25 and offers a regular savings plan. However, Vanguard ETFs are not available within the account, only their managed index funds. Considering that managed funds are generally outperformed by ETFs, is it still worth creating an account for my five-year-old son?

Lina

Scott Pape’s new book Barefoot Kids: Your Epic Money Adventure!

Hi Lina,

Your question makes me feel like I’m at the breakfast table at 5am.

It’s like you’re my two-year-old arguing that his Wheaties taste better in his favourite Bluey bowl. (I’ve had this argument way too many times.)

Lina, you are buying exactly the same index, and the exact same stocks. In fact, Jack Bogle (who founded Vanguard and pioneered index funds) favours managed index funds over ETFs, as they are less prone to trading.

What matters is that you invest. And that you then casually reinforce the investing lesson by reminding your five-year-old of all the companies he owns shares in (“You’re a part-owner in Woolies … and Coles … and Macca’s!).

Go on, plant that apple tree!

Old Dog, New Tricks

Dear Barefoot,

I am now 90 years old and have just completed reading The Barefoot Investor. I wish I had done so much, much earlier! My family house pays for all overheads and so I am able to exist on a pension and have a small nest egg. My question is: should I go with the Barefoot investment plan at my age, as who knows what the future may bring? Recently my wife passed away and now I’m lost without her. Is it all too late for me now?

Sam

Barefoot says for some older people it might make sense to give their inheritance away to loved ones now so they can get to see the good the money will do.

Hi Sam

My condolences for your wife’s passing. I can’t even begin to imagine how hard it would be to lose your best friend after so many decades together. But I think the most important thing for you to focus on is spending time with your family and friends, not on changing your finances!

In fact, here’s something to think about: if it is financially prudent to do so, you might consider giving some of your inheritance away to your loved ones now. That way you get to see the good your money will do, and connect with your grandchildren and great-grandchildren!

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.