The hot topic in the press atm seems to be the fascinating world of Australia’s current housing market. On all fronts, it’s a wild ride and today I’m unpacking some key insights from a recent article I read “This vicious housing cycle looks hard to escape” by the AFR’s James Thompson that sheds light on the situation, helping us understand how to best position ourselves and our advised clients.

The Housing Market Heatwave

Australia is experiencing an immigration surge like we haven’t seen in five decades. Paul Bloxham, HSBC’s chief economist, is calling it a true economic shock. In October alone, dwelling prices rose by 0.9%, bringing the total increase to a whopping 7.6% since the start of the year. We’re talking about all-time highs being reached before we even hit 2024.

The Imbalance Dance

With a population increase of about 500,000 a year, the demand for housing is surging. However, the supply? Not so much. Housing starts dropped by 5% in September, painting a rather grim picture of our ability to keep up with the demand. We’re currently running at 160,000 new homes a year, far below the government’s target.

The Double-Edged Sword

Typically, higher interest rates would cool down the housing market. But this time, it’s different. The extraordinary lift in immigration has changed the game, creating a unique scenario where even with a 30% fall in home lending since May 2022, house prices continue to rise. The RBA is under pressure to raise rates, but this could spell trouble for mortgage holders, especially with the massive mortgage buffers built over recent years almost run down.

Strategies for consideration

As financial advisers and mortgage brokers, how do we guide our clients through this tumultuous time?

Here are some strategies to consider:

  1. Risk Management

Ensuring our clients are prepared for potential interest rate hikes. Stress testing your budget and make sure you’re aware of the risks involved in the property market.

  1. Diversification

Ensure you have a diversified portfolio. Property is great, but it shouldn’t be the only player on the field.

  1. Long-Term Perspective

Remind yourself to keep your eyes on the prize. Property investment is a long-term game, and short-term fluctuations are part of the journey.

  1. Liquidity Considerations

Liquidity should be at the forefront of your strategy and mind. Ensure you have enough accessible cash to handle any potential cash flow pressures.

  1. Education

Keep yourself informed (from reputable sources). The more you understand about the market conditions and potential risks, the better decisions you’ll be able to make.

  1. Opportunistic Thinking

Keep a keen eye for opportunities, balanced with a healthy respect for risk.

  1. Review and Adjust

Regularly review and adjust your financial plans to ensure you remain aligned with the ever-changing market conditions.

Navigating Australia’s current housing market is no small feat. But with the right strategies, a cool head, and a well-informed approach, you can guide yourself through the ups and downs, making smart, strategic decisions that align with your long-term goals.

If you want to discuss any aspect of your current financial position let’s dive into the conversation and navigate these turbulent waters together. Reach out to any of the Inspired Money Team and we are only too willing to make time to discuss your situation.

This article was written by Director & Senior Adviser Shane Mitchell and provides general information that should not be considered personalised financial advice. If you have specific questions or concerns book a session to review your situation or any other financial planning issue by contacting Shane directly on 08 6222 7909 or book a meeting directly via his booking page.

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Inspired Money