Property update

Crown Money where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to Crown Money Podcast. I'm Jessie Edge and I'm joined by Scott Parry. How are you today, buddy?

Howdy. Good neighbour. How things?

Yeah, good, good. It actually just started raining here, so I'm just hiding out inside. But yeah, life is good.

Good on rain. Good. Not certainly. I don't know, as long as there's no wind, I just don't like wind. Rain I'm okay with.

Yeah, wholeheartedly agree. When it's raining and windy, that's when it's really screwed.

Yeah, yeah, yeah. Very Melbourneish. And I also think with rain comes clouds and I just like to see the sun, so maybe that's why. Sweet. So let's talk about trolley probability. Yes.

What are we going to talk about today?

So we've got some interesting data coming out from some good friends of mine at Performance Property. These guys have been running for nearly as long as Crown. And so what they do is they basically look at property prices, predictions, probabilities and where they think there's some good value in the market and where is obviously not autonomy buying. So what they've done here is I've actually gathered all the data, all the metrics from around Australia, every suburb of every state, and then they've started to price in where they think the growth forecast will be based on how many interest rate rises we get. So this is 100% hypothetical probability. It's certainly nothing locked in stone, but that's just what their guidance is going forward. So when we talk about the variable rate, that's based on what? Based on this variable rate, what they think the property growth will be over seven years. Okay, so this is over seven year time period. And so it's very important to remember that it's not one or two years, it's seven years. So that's 2000 pretty much in 2030. This is really where we look at where property's going to be in 2030. So price forecast number one, if the variable rate is around 4.14%, then we're going to be looking at these price changes from now to 2030. Sydney down 4%, Melbourne up 10%, Brisbane up 44%, Adelaide up 75%, Perth up 112%. And so we've got regional Victoria up 44% and regional Queensland up 57%. So that's if the variable rates at 4.14%. So what that really means is if rates Pretty much after this year, don't move at all. Like that's as high as they get. I don't think that's very likely or realistic. So let's go to the next forecast. What happens if rates go to 4.64% as the standard variable? And what that really means is there's going to be. It's an extra half a percent more based on that first forecast. So we go to Sydney. If rates go to 4.64%, that's a 10% hit. Melbourne's a 4% growth over the next seven years. Brisbane, 36% growth. Adelaide, 65% growth. Perth, 100% and then WA regional 105. Victoria regional 36 and Quantum Queensland regional, 48%. So you can see there, an extra half a percent rise takes about 10% off the price change of property around Australia over the next seven years. So for every half a percent, they're predicting 10% less growth over seven years. I know it sounds confusing, but let's try and run with forecast number three. Wow. What happens if rates go to 5.64%? There will be.

Which isn't out of the realm of possibility. Right. Like that's a. That's probably where it is heading.

Yeah, I actually think this is probably will be the closest, who knows? But if I was a betting man, I think this is where my money would be. The likely variable rate.

Over our time, the average interest rate has always been around 6, 7%. We are at absolutely incredibly low rates right now. We've had a very luxurious couple of years, but I think they will settle back into that 6 to 7%.

Yeah. I mean, it's like an elastic band. Right. So if the average is 6 or 7%, this elastic band's been stretched all the way down to 2%. That's going to snap back. And even if it gets to 5.64%, which is what this forecast is based on, these are how the numbers are going to unfold. Sydney, 20% hit. Melbourne, 7% hit over the next seven years. Brisbane, 21% growth. Adelaide, 47%. Perth, 78%. So you can see there, like 78% growth over the next seven years compared to one hundred and twelve percent growth. Literally close to 40% differential there. And that rate is an extra one and a half percent higher. So, yeah, rates. This is very simple for everyone to understand. As rates go up, property prices go down. Why? Yes, because, Jess, what happens when rates go up to people's borrowing capacities?

The borrowing capacities go down. So the higher the interest rate the less you can borrow, the less you can borrow, the less you can pay for property. Therefore, you know, people just can't pay those high prices prices anymore. People have to start dropping the sale price of their property so that they.

Can get a buyer and that's called prices coming down 100%. So as rates go up, your income can't borrow as much as what it could when rates were lower. Therefore you can't offer as much for that property. And guess what? If people aren't offering as much, that means the prices that they're selling for aren't as high. And so, yeah, we really see Sydney taking a 20% hit if rates get to 5.64. That is certainly a. I'm not saying it's unrealistic. It's certainly a possibility. Certainly a possibility there. I think the standout winners here, Perth coming in at 78% growth over the next seven years. If rates do get to 5.64%, Adelaide predicted to 47%, which is stellar. Brisbane, 21%. And then Sydney and Melbourne taking a hit, taking a haircut over the next seven years, which is, you got to take into account what goes up, must come down. We're going.

They're so inflated right now. That's what those numbers kind of tell you. It's like they're just the property prices there are inflated and so they need to kind of level out again.

That elastic band we just talked about, like it's got to snap back. And the elastic band in Melbourne Sydney is stretched the furthest back, so. But vice versa. Perth and Adelaide didn't have that parabolic growth, so that's why they've still got some upside there. They haven't had the growth that Melbourne Sydney's already had. So that's property probabilities and forecast.

Very interesting.

Yeah, it's awesome data. It's all coming to a head. As these rates go up, you start to see these property price changes come through and so who knows where it's going to end up. Well, watch your space. The only day the property price matters is the day you sell.

Day you sell it. Absolutely. That's so funny, isn't it? Like, if you've got a share portfolio, you can watch it every single day and see what the balance is and you get really stressed out when it goes down. You're really excited when it goes up, but at least with property, it kind of sits there ticking away and you may even, you may check the price maybe once or twice a year so it doesn't stress you out as much. But yeah, absolutely. It doesn't matter until the day you actually cash it in, sell it.

And if you're buying investments, we're going for the 20 year play. That is. Please promise me, if you're going to buy an investment pro, you're holding for the 20 years and it starts to get real sexy after 20 years, that property, the cash flow coming off it, the equity coming off it, like you just got to do that long term. Think of every investment property as your super fund. Think of it as a super fund outside of super.

Wonderful. That's awesome. Thank you so much for that, Scott. Very, very valuable information.

No worries. We'll talk soon.