RBA: Predicting a 30% House Price Increase?
The Reserve Bank of Australia has forecast that house prices could jump by 30% over the next 3 years if the current low interest rates remain.
This prediction comes for an RBA report released under the Freedom of Information request putting the effect of ongoing low interest rates under the microscope.
What is the basis for this? It’s pretty simple economics.
Low interest rates equals low cost of debt, meaning that it’s cheaper to hold assets, causing an increased demand in assets, which in turn causes prices increases.
That’s the basics of it, although it gets more complicated than that. Many forces need to combine to create the perfect storm including market sentiment, which tops my list of why assets climb in value.
Have a look at Bitcoin. When people trust the market and believe that prices will rise, the prices sky rocket having a self fulfilling effect. When people lose trust in the market, the bottom falls out and values crash by up to 90% historically.
This is an extreme case to demonstrate the point but the same effect happens with real estate although to much less of an extreme. One of the main reasons being is that It’s difficult and costly to liquidate property, people tend to hold through the flat spots if they can afford it, which creates stability in the market.
You hear these boom/bust predictions all the time – boom suburb, hotspot, prices doubling in 5 years, prices crashing, housing collapse. To me it’s just noise to distract you from your ultimate goal.
According to the RBA using 30 years of data house prices increase over time at an average rate of 7.25% P.A. (although this trend is decreasing). If I can capitalise on a 30% price increase, then great, that will help me when my portfolio stagnates after the growth period but over a long period of time it all averages out.
You need to be in it for the long game.
If you gamble on short term games you are playing in the high risk arena and you could get burnt. Buy with a 15-20+ year outlook and the the odds will move with you.
If you play by the rules and take the correct steps, it’s difficult to fail.
Educate, work out your ‘why’, master your finances, formulate a strategy, build a team of professionals, research and accumulate the right properties, consolidate your portfolio and retire with freedom.
‘Book a Chat’ on my website or DM me if you need help with any of these steps or formulating a strategy. Hapy to answer any questions, I am here to help you achieve your goals.
