Private property issue #114

We just got new data about house prices on Monday. The data shows that prices fell last month. It raises 3 big questions:

• What’s happening in the property market?
• Where will house prices go next?
• And what about interest rates? When are they coming down?

What’s happening with house prices?

Property prices peaked in November 2021. They then fell for 1.5 years and bottomed out in May last year (2023).

Over the following 9 months, house prices recovered quickly. They went up by 5.2% by February this year.

But over the last 3 months, house prices have fallen. Though, they are still 2.3% above the bottom of the market.

Some of this was expected.

House prices usually go down in Autumn. But it’s not just cold weather holding house prices down.

Everyone’s waiting for interest rates to drop.

And while mortgage rates have gone down (a bit) over the last 6 months, they still feel high.

If you turn the temperature down from 30 to 28 degrees, yes, the temperature goes down. But it’s still hot.

That’s what’s happening with interest rates. They’ve gone down a bit. But it’s still tough.

The trouble is that all this data just tells us where we’ve been. But where might we go next?

When will house prices go up again?

House prices will probably go up a little bit in the rest of 2024. But it will still be a hard property market.

Here’s how I think about it:

2020 was easy for property investors. Interest rates were low. Property prices were rising.

2021 and 2022 were challenging. Property prices fell, interest rates went up (and taxes did, too), and lending rules got tougher.

2023 got a bit easier. Property prices bottomed out and started to go up. We got a new government. They said they’d make things easier for investors (less tax and regulation).

But here’s where we are in 2024. It’ll get a bit tougher before it gets easier –

Over the next 6 months, two main things will happen:

1) The bright-line test will go back to 2 years on the 1st of July.

That will cause the number of property listings (properties available for sale) to increase.

Investors who would’ve had to pay tax can soon sell their houses tax-free.

This will increase the supply of listings and dampen house price growth. 

2) Interest rates will likely remain high for the rest of the year. They probably won’t come down a lot until the first half of next year (2025).

These 2 factors will cause a little bump in the road before things get easier.

Come 2025, things should change. Here are the banks’ 2024 house price predictions vs their 2025 predictions –

Every single bank thinks that house prices will go up faster in 2025 than they did in 2024.

But what about interest rates?

Next week, I’ll release a podcast where I interviewed 3 bank economists to get their interest rate predictions.

Here’s where they think the 1-year mortgage interest rate will go –

They don’t think rates will fall much in 2024. But next year, there should be some cuts.

What’s the silver lining?

Every cloud has a silver lining. The benefit of falling house prices is that you get the chance to buy at the bottom of the market before prices recover.

The trouble is, you’ve already missed it. The bottom of the market was May last year.

However, last month’s falling prices are creating a double-dip downturn.

Where house prices went down, went up a bit and now have gone down a tad again.

This could be your second chance at buying near the bottom of the market. That means being able to negotiate a good deal while everyone else is waiting for better times to come.