House price positives now even stronger
Now that we know the result of the general election, we can all incorporate the slow restoration of interest expense deductibility by mid-2026 into our thoughts about where the housing market is headed. Clearly, the improving cash flow situation for investors will dissuade some from selling and encourage others to look at buying.
Their willingness to buy will for many remained constrained by high interest rates as the Reserve Bank fights inflation which is still too far away from the 1% – 3% target range. Plus, restoration of a two year brightline test will likely bring some extra sellers into the market.
But the upward leg of the house price cycle has been in place for four months now and with uncertainty surrounding the election out of the way, many people are going to make and act on many decisions. More first home buyers will feel that time is running out for them to make a purchase with little competition from other buyers. They will accelerate their buying plans.
Acceptance of the price cycle bottoming out will naturally bring more investors into the market. Further encouragement will come from news of the net migration gain hitting a record of 110,000 people in the past year. That equates to a 2.1% population surge which can do nothing other than place upward pressure on rents and eventually house prices as existing enters look more favourably at buying.
I know from recent presentations at housing – focussed functions that many investors are already back in the market looking at purchases and considering new property developments. Once the outlook for interest rates becomes more positive – probably towards the middle of next year – the return of more investors will set the scene for average house prices regaining their late-2021 peaks, probably in 2025.
The house price cycle usually has an upward leg lasting some six years. We are four months into this one and it pays to note this upturn has started with interest rates high and still in fact creeping higher.
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Wake me up when September Ends
September wasn’t a good month for investors in shares or bonds. Historically the US S&P 500 index has averaged -1.2% from 1928-2023 over the month of September. This month it exceeded expectations delivering -4.9%. (Stats courtesy of Select Wealth Management)
Many Central banks around the world have hit pause on raising interest rates further, instead predicating they would stay higher for longer. They appear to be content to wait for the implications of the recent lifts to flow through to the economy. While this is good news for borrowers, it is a mixed bag for bond investors. Long term bond yields rose from 4.11% to 4.57% during the month. That means bond holders will receive higher income. However, it means buyers of bonds will demand a larger risk premium, meaning bonds trade at a discount. Investors will need to wait longer to receive capital gains on their bond holdings.
Thankfully, the December quarter has traditionally been the best quarter of the year. Since 1950, 79% of the S&P 500 4th quarters have delivered a positive result. The average has been a 4.03%. (https://www.schaeffersresearch.com)
Disclaimer: This newsletter is meant to be informative and engaging, hopefully not a cure for insomnia. Please don’t take this as personalised financial advice. Discuss your situation with an Advisor. This is where I need to say past returns are no guarantee of future returns.
