Are we in a housing market bubble?
How’s this for a statement? Property prices have not gone up, they’re not in a bubble, they never have gone up, they never will go up. This may sound crazy, but wait, we can explain.
Just look at the house prices in Australia over the last 100 years. From the early 1900s, they basically went nowhere all the way through to the 1950s.
Then, for the last 50 years, prices have gone nuts, they keep going higher and higher.
From 1960 through to the early 1980s, house prices suddenly doubled in value. Then they went sideways. Then from the early ‘90s, interest rates came down, prices increased a little bit, then more sideways action over the next decade or so. But after that they just took off and keep taking off. And each time the property market goes up, it keeps going higher and higher in value.
There’s a reason for this
It’s not because we’re great investors, it’s simply understanding how the monetary system works with Fiat currency and manipulation from the central banks.
It’s put us where we’re at now. Some people call it a housing bubble, but it’s not. It’s a currency bubble.
It’s not just property prices that have gone up, it’s your food, clothing, vehicles, living expenses, etc. Everything has been inflated away.
Let’s look at some basic numbers. People say property prices double every 10 years. Why does that happen? How does that happen?
You’re paying the same as you always have
Back in the early 1990s, you’re looking at about $200k for an average property in Sydney. Let’s assume you had an interest rate of 18% for that property. You’ve got a loan of $200k at 18%, which means you would have been paying $36k a year in interest.
Fast forward to the year 2000 and the property market has doubled. The property prices went from $200k to $400k, but interest rates went down to about 8%. So at that point, if you had a loan for $400k, 8% interest on that would mean you paid $32k per year in interest rates. That’s less money than you would have been paying on a property half that value a decade earlier… because of interest rates.
Now look at the property market in 2010/2012, values have doubled and that property is now $800k. Interest rates by then were down to 5%. So a loan of $800k at a 5% interest rate would cost you $40k a year.
Fast forward again to 2021, that property may now have doubled to be worth $1.6m. People are currently paying 2-2.5% in interest rates. So let’s say you’ve got a 2% interest rate on $1.6m worth of loan…you’re paying $32k a year in interest.
Property is no less affordable than in 1990
So over the last 30 years, it appears that property prices have gone up significantly and people can’t afford it, but in reality it’s no less affordable than in 1990. You can still purchase because you’re paying a lower holding cost on the asset.
Is a property ever really worth $1.6m? It is with the right interest rate. If the interest rate was 1%, the property might go up to $4 million and still be costing you $40k a year.
Hold on to your assets
The best way to win big has been if you can take a property from a previous time through another property market cycle, watch the currency get devalued and then pay off today’s debt with tomorrow’s dollar. That way your debt becomes irrelevant with inflation. Once you understand that, you understand real wealth and hard assets.
Money will be worth less and less
Over the course of the next decade, a lot of people will struggle to afford food, and other cost of living items.
Sure, people may have money, but in this monetary system they are printing more and more money every week and it’s losing its value.
In essence, if you earned $1000 this week, that $1000 will never in the future be able to buy as much as it could this week. Money never buys you more than what it does on the day you earn it. So, get that quality debt, hang onto it and inflate it away with tomorrow’s dollar.