Reason Australians should be investing in this right now

Contrary to popular belief, buying this one thing right now could pay dividends in the long-run. The second half of this year could see prices rise dramatically.

ANALYSIS

Doubts about Australia’s house price rebound have been creeping into markets for six months.

Rising interest rates and softening employment are primarily the cause.

Price gains have eased or stopped everywhere:

The cycle

Contrary to popular belief, this is the time to shop for a house if you are in the market.

There is no such thing as a bargain in Aussie property. But we have periods of softening prices when lowballing is a good strategy for prospective buyers.

The next quarter or so is one such period before the market shifts to the expectation of interest rate cuts, which should begin in the second half of this year.

Once the cuts come, the market will move quickly to price more accessible credit and larger mortgages and skip away from the hopeful buyer.

The fundamentals

The fundamental case for property remains rock solid.

Underpinning demand is the Albanese Government’s out-of-control immigration.

This means rents will remain on the boil to keep property investors interested. Vacancy rates may improve slightly but don’t hold your breath for normalisation.

The story is even more bullish on supply, with a weak pipeline of new builds.

Again, we can thank the Albanese Government’s immigration and energy policy failures, which have driven construction costs mad and made building uneconomic.

New builds will lift ahead but nowhere near enough to end Australia’s housing shortage:

The property market needs price gains to kickstart a supply response.

Bad news is good news

Finally, interest rate cuts should arrive in the second half of 2024, and property is one of the most sensitive segments.

There are only a few cuts priced into markets through 2025. But the risks are all to the downside for rates as economic headwinds blow from China.

The global economy may enjoy a soft landing post-inflation, but China will likely not be a part of it.

The growth era of Australia’s great and powerful economic sponsor is over as its property crash rolls on.

This structural adjustment has already crashed oil, gas, coal, and green metals prices.

Over the next few years, Chinese demand for Aussie commodities will likely only worsen and, sooner or later, iron ore will tumble as well.

That is bad news for miners, national income and the budget, but it’s good news for East Coast property owners as interest rates fall much more than anybody currently reckons.

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geopolitics and economics portal. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.