• If you’re wondering what’s keeping interest rates so low, read our latest whitepaper here

Lots of good reasons for house prices to keep on rising

18112019_property increasing

Lots of good reasons for house prices to keep on rising

Well, what do you know – national house and apartment prices are on a tear again.  Although the national median house price is not back to where it was around two years ago, there’s every chance it soon will be.  And that’s good news for Australia’s property investors.

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INVEST WITH MONTGOMERY

Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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12 Comments

  1. Hi Rog, after reading 5 years of explicitly detailing the demise of all things property, the abrupt turn around in the commentary seems a tad gung-ho ……whilst interest rates and APRA changes may warrant the apparent short and medium turn uptick following 2 years of falls (although can you believe the media hype of the turn around?)………..can you put your intrinsic value property hat on and hand over heart and say the worst is behind us and that the general economic outlook both domestically and internationally means we should all pile back in………I know you haven’t said this by any stretch of the imagination but given the diatribe over the last few years I’d expect you guys wouldn’t be so quick with the green shoots and perhaps er on the side of caution……apologies if this comes across a tad harsh but just interested in the perceived change of heart?

    • Thanks Richard, It’s not uncommon to hear a little frustration when we change our view. It’s important to be able to change views when the facts change. Investors must not be wedded to their thesis if the facts change. Plenty of ‘gold bugs’ have lost their shirts because they are wedded to their view, even when contrary evidence is observable. We try to be fact based. We have previously presented a thesis that property prices would not produce a V-shaped bottom, that they would rise and fall but muddle along around here for a while. And note that I did not say that property is now good value. There is a difference between saying “prices will rise” and that “prices are cheap”! The facts do however point to a near-term bottoming in property prices and that’s what we’ve seen. Of course if a global recession or financial crisis occurs, all bets are off. Still waiting to see if property construction cliff is high or low – will depend on government and RBA response to the slowdown.

  2. This idea that it’s great if house prices keep rising is totally insane, they have already diverged way to far from average income growth and now the government and RBA are doing everything they can to force the price of houses up even further. It’s unbelievably stupid, because it’s simply not sustainable, and can only result in eventual economic and social upheaval, house prices cannot keep growing faster than incomes forever, it’s just a mathematical fact, and to base a countries economic future on the rise of house prices, is even stupider than believing it’s possible to start with..

    • Good thoughts Andrew. A recession is usually a good tool for reminding the population and investors about this. Every central bank in the world is working to avert a recession.

  3. “Two possible setbacks for property prices are a sustained rise in bond interest rates or a domestic economic rout, triggering widespread job losses.”

    Or, what if interest rates finally reach zero, then what happens? 1) governments can no longer bail out consumers who have taken on too much debt through dropping interest rates and hence defaults increase 2) governments respond with fiscal stimulus causing interest rates to rise.

    I realise there is a logic to looking in the rear vision mirror looking what has previously happened but from my perspective so many things do not make sense at the moment that one would have too conclude that the system is about to switch to a different mode.

      • I see Denmark recently launched the first negative interest rate mortgage. I’d be interested to hear any views you have on this Roger.

      • We wrote about it earlier in the year. Banks received -0.75% depositing reserves with the central bank so they lose less by offering mortgages at -0.50%. Consequently real estate prices going up but Danske Bank A/S shares have fallen from 257dkk to 90dkk

    • You need to be safe in the knowledge John that we are and this time is in fact different! As a conservative, responsible saver there are many ways for the Government to drag you into the mess once rates hit zero. They’ll simply cross the line into negative territory and make you pay to keep your wealth outside the share and property markets. As Scott Morrison says, those who have a go, will get a go. Just like this mob (roughly $50m worth of debt on supposedly $100K of income!).

      https://www.theage.com.au/national/victoria/the-money-lenders-in-the-temple-after-head-monk-racks-up-big-property-debts-20191116-p53b78.html

      • this is my fear Jimbo though relatively it might be better to have deposits in negative interest accounts even though this sounds absurd – indeed if the government is really prepared to guarantee these deposits it is not such a bad deal.

        Value equites is the other option and that is a question of trust and favours those who have the intelligence (both senses of the word). Passive ETFs seem to be about the most stupid thing lately and the fact that they go up is a worrying sign.

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