Cycle Amplifiers: The 7 Forces Moving Property Prices Right Now | Tuesday Toolkit

Introducing Tuesday Toolkit 🧰: a new series designed to help you make sense of what’s happening in property right now.

From the latest data and market trends to the frameworks and key indicators we use to understand what’s really driving the market, each episode will give you practical knowledge to cut through the noise, see the bigger picture and make more informed property decisions.

Think of it as your toolkit for understanding where the market is, why it’s moving and what to watch next.

And we’re kicking things off with Cycle Amplifiers.

Property prices are moving — but do you know what’s actually driving them?

Ahead of Thursday’s much-anticipated Mid-Year Property Outlook, Ben breaks down the seven Cycle Amplifiers shaping Australia’s property market right now — from interest rates and credit to government policy, employment, sentiment, supply and global shocks.

Some are pushing prices down. Others could change the direction of the market again. But crucially, the forces moving prices today aren’t necessarily the ones that determine long-term performance.

Before we unpack where Australia’s property markets could be heading next, this is the framework you need to understand what we’re seeing today.

Got a Question or Take on the Cycle Amplifiers? 
How are these forces playing out in your market, and what are you seeing on the ground. Send us your questions, comments or observations and we might unpack them on an upcoming episode of The Property Couch. 

👉 Send us your question or leave us a comment! 

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Transcript

Why Property Prices Are Moving Right Now

SPEAKER_00 0:03

G'day Couchers Ben here. It is a special Tuesday episode. It is an educational deep dive. I am going solo, and it's it's all about explaining the factors that drive short-term price movements in the residential market. Now, it's obviously super timely that we're having this conversation because we are in a downturn. So we're seeing a decline across most markets across Australia. So it does it does help in explaining to you what are the drivers. Now it's backed by Imperial Academic Research. Uh so it's got that proven research and it's also evidence-based data that you're going to be seeing here as well. And it's also a helpful segue into Thursday's uh mid-year property market update. So credit and shout out to the Empower Wealth Research team that obviously helped me put this together. And we call this the cycle amplifiers. So these seven factors influence the speed, timing, and volatility of each market cycle. But it's important to understand that they don't influence the overall multi-decade long-term hierarchy of location and land and property type. So what we're saying is the cyclical amplifiers govern the short-term market rhythm and tempo, but they never dictate the long-term location, sustained land value appreciation. So I'll say that again. They don't sustain the long-term land value appreciation. That's all got to do with the scarcity and appeal of that land. So the ultimate long-term sustained land value outcomes are driven by seven other core factors and five what we call momentum engines, but that research is for another day. Today we're focusing in on these cycle amplifiers. So what are the cycle amplifiers? Well, they're made up of interest rates, credit availability, tax and policy, income and employment shocks as part of those economic cycles, expectations, sentiment, and speculation. So we've seen a bit of that recently, supply constraints, and any other external shocks or black swan events. So I'm going to

#1 Interest Rates & Borrowing Power

SPEAKER_00 2:26

unpack these in a bit more detail, starting with the price movements around interest rates and borrowing capacity, and explaining to you the importance of just how much influence they have in this short-term cycle. So interest rates and borrowing capacity have a very high importance. Credit availability, which is a hidden lever in some respects, also is very high. And we'll explain to you a little bit more about that when we unpack each of these. Income and employment shocks are high. So they're not very high, they're just high. Expectations in sentiment, classic animal spirits that we saw last year, which is changing rapidly now, is also high. Then we've got tax policy and also other changes. Now that's low to moderate, but if you get one large change like Neva Gearing and capital gains, that can be elevated into a high position. And then on the supply side, we're seeing things like supply constraints, which is also moderate and takes a little bit longer to play out. And then finally, those extreme shocks, which is any type of major conflict, uh global financial crisis, those types of things where we can see that ripple into a broader economic impact in the economy. So let's move into these as we begin our learning. Let's talk about interest rates. As I said, they are very high. Now, if you're watching along, you can see we've overlaid price movement over the long term. And then we've also overlaid the cash rate over a very long period of time from 1975 to 2026. And in this comparison, you can obviously see that variation. So what happens here is in a cyclical move where interest rates go up, so we can see here that we had those 13 rate rises in the initial phase of that rate rise after the very, very low interest rates that we had. So the 0.1 cash rate that we had during the pandemic, we saw those rate increases to try and stifle the inflation. Remember going back a couple of years ago, we had a supply shock, and then we had obviously domestic demand also pushing uh interest rates higher. So we saw the original correction, and then interestingly enough, as the cash rate was sitting at 4.3%

#2 Credit Availability: The Hidden Lever

SPEAKER_00 4:52

last year, prices were actually going up. So again, people set their adjustments and their behaviors around what happens when it comes to interest rates. So under normal conditions, as interest rates decrease, property prices follow, and then they obviously increase as the cost of money goes down and access to credit goes up, we start to see a lift in demand side. And you know, obviously there are exceptions to the rules that particularly come when there are significant events, such as obviously the GFC or what we talked about earlier about the pandemic as well. So that's just one thing. So interest rates do play a role in the cyclical amplification and the tempo in the market in the short term. And this leads us into credit availability. And so credit availability is very high, and this is a comparison of credit to households. And so the private non-financial sector as a percentage of GDP versus house prices is the chart that you're currently looking at. Now, as availability of household credit rises, so too do property prices. Because it's logical, isn't it? As we see more accessibility to credit, we create a higher demand pool. That demand pool wants to then participate in the marketplace, and it pushes prices higher as part of that story. So we can see that on the chart here that when credit becomes available or cheaper, usually it then becomes available as part of that affordability story. So interest rates come down, credit availability goes up, borrowing power goes up as part of that interconnection between interest rates and credit availability, and that pushes prices higher. It's only human interest. If someone's willing to give me the money and I can then go out shopping, I'll potentially use that money to get into the property market. And we can create these moments of FOMO, which is obviously fear of missing out, and then FONGO, fear of not getting out, uh, when the marketplace is in moving through some of these cycles. So cycle amplifier number two is credit availability, and it carries a very, very high level of influence in the cycle in the short term. Now let's move to tax policy. Now, historically, tax

#3 When Tax Policy Shocks the Market

SPEAKER_00 7:15

policy has been low to moderate because we don't see too many changes when it comes to certain tax policy. But certainly over the 2020s, we are starting to see more government intervention into the market, and that's creating all sorts of unintended consequences. And so the biggest decision here that we've seen is around negative gearing and capital gains tax changes, and that's created a shock in market. So we can see it on the ground now and the level of inquiry that we're getting that there's been a material impact when it comes to those inquiries. And so that has led to softer demand. Um, and that's also then seeing property prices start to move in that downward direction. And so this has been a really interesting time because it's obviously come off the back of the interest rate rises that we've seen. And I'll talk more about this in our upcoming property market update. But for now, all you need to understand is historically, when tax policy plays on the fringes, it doesn't have much of an impact. But when it has a direct impact over a 20 or a 30-year period and it's a significant change, then it's going to have a shock impact. And that's what we're seeing at the moment in terms of that. And that's putting more downward pressure. So it's a it's an amplifier or it's magnified where this correction might lead us to. So, yes, we might have got a bit of a correction from affordability when it came to higher interest rates, but this has really put a shock into the system, which is putting downward pressure on property prices now across the country. Let's move now and talk about income and employment shocks. So you can see here it has a high impact when you factor it into the overall mechanics and buyer behavior and market behavior. And when we look at the comparison here between unemployment and property prices, you can see a lot of that inverse relationship there. So when we have recessions and we have high unemployment, that means obviously less people have got incomes. If we don't have incomes, we can't borrow. So ultimately we see a slowing in the market. But when we have high employment, low unemployment, we also see the opposite effect occur there as well. So that's exactly what we're seeing. So under normal circumstances, as that unemployment rate decreases, property prices will usually

#4 Why Jobs & Income Matter to Prices

SPEAKER_00 10:11

start to increase over time. And of course, if the governments do a good job of managing economies, then we should see hopefully low unemployment. And with that low unemployment, we see people demanding access to property and to land. And that's why we see over time those land values increase as part of that story. So when we see an income or employment shock through an economic cycle, um, such as the 1990 recession that you're seeing on the chart there, you can then start to see what happens. Property prices, as the recession kicked in, interest rates, sorry, unemployment was going up. You could see that property prices fell from their previous peaks, and that usually is occurring through that period. And then we've now moved into a period now where we've got lower unemployment, and that's been very, very good for property prices right across the country as people who are looking for work usually are able to find it under the current arrangements. So the next cycle amplifier I want to talk about is expectations, sentiment, and speculation. Now, this also carries a high impact. And the reason for that is really simple. Economics is the study of activity of what humans do, so consumers and households, and also what governments do. And so when those things get out of a line, then we obviously align, and I should say we obviously see some impacts on that. So take, for example, COVID in the graph that we're seeing here. It's measuring consumer sentiment versus property prices, and we've also thrown in there the business confidence. So when COVID hit, we had this massive drop-off. You know, at the very start, we had uncertainty, we didn't know what was going to happen, how, you know, what was going to be the death toll of this very, very serious pandemic. And so it collapsed. Consumer confidence collapsed, business confidence collapsed, and off the back of that, the RBA stepped in and basically dropped the cash rate to 0.1 of 1%. Now, when that happened, and when the government announced over $90 billion of spending for people to retain their jobs, so their furlough spending that they did so everyone could keep their jobs as the economy basically shut

#5 FOMO, Fear & Market Sentiment

SPEAKER_00 12:34

down during that earlier stage of that, as people started to realize that, you know, that we did have to slow down and lock up and all those other things. But the death rate wasn't as severe in terms of what was happening. Some economies didn't have to lock down as much as the Victorian and Melbourne economies did. And so confidence started to rise again. Uh business confidence was up with that record, government investment and spending and stimulus that led to consumer uh sentiment going higher. And then property prices took off because what we've already learned low interest rates, and also, you know, in terms of access to credit, that took off based on those serviceability calculators, and property prices stormed higher. Then, off the back, the closing parts of COVID, we saw the global supply shock. We saw Russia and uh invade Ukraine. That also played a role in that in terms of lifting up inflation. Then interest rates had to go up on the top of that. And so we saw 13 rate rises. That took the momentum out of the market. It certainly impacted the consumer heavily because everything started costing a lot more. So they were very pessimistic during that period. Then we come out of the COVID period, but business investment hasn't really recovered. We haven't done, you know, a great job in managing the fiscal policy and the economic settings in this country. We still have very poor productivity, and that's affecting higher inflation. And with higher inflation, it means that everything costs more. So that means also higher interest rates. So that's basically what's playing out here. And then, of course, off the back of the federal government's announcement around significant tax policy changes in property that also collapsed the consumer because of the wealth effect in terms of how they're feeling. And so we're now starting to see the turning of the economy with higher interest rates, and then what's going on there. So we're going through these periods of FOMO, fear of missing out, everyone wants to jump in, everything's going great. And then obviously to FONGO, which is the fear now of not getting out. So we're seeing a lot of people looking at selling properties, uh, investment properties that they've bought, because they're worried about how significant this correction will be, because it will be a significant correction in terms of what's happening there. So again, this is the

Why Melbourne’s Long-Term Story Is Different

SPEAKER_00 14:58

cyclical amplifiers. My message here is this is only those short-term rhythms and tempo that occurs in the economy. It's not really something because you can see obviously the long-term trend has been higher for property prices over that time. But it's an important thing to understand. And whilst we're on this whole idea of what happens from an economic point of view, you can also see the scale and size looking at the GDP rates. So this is the gross regional production in Greater Sydney, Melbourne, Brisbane, etc. And so they still go through economic cycles, but what we're seeing here clearly is that bigger cities are significantly bigger economic engines. They attract higher incomes, they attract higher land values, livability scores. But when you get the settings wrong, which is what the Victorian Labour government have done, you see a contraction in the economy. The only reason why we're actually seeing some growth in Victoria is because of the record level of government spending on infrastructure and other care economy and also services. And that's that's not business investment. So ultimately, that's why you're seeing increased levels of unemployment in the state of Victoria because they've poorly managed the economy. But you can still see the size and scale of the sleeping giant than the Melbourne market is going to be. So I just wanted to give that up as a placeholder so you can get context in terms of the long-term drivers being, you know, that land scarcity amenity. Um, those cities that have that bigger economic engine produce higher demand on land as part of that story. Okay, so let's move now to the sixth um factor, and this is supply constraints. So when we talk about supply, so underlying demand and supply for housing, we can see that in the short term, there are material shortages in terms of building industries, insolvencies, regulations, um, sudden unexpected migration spikes. So off the back of COVID, we saw a lot of people leave, but and then off the back of that, we saw a record number of over a million people arrive in this country over a couple of years. And that's created this demand spike for housing and shelter. And so that's what we're seeing in terms of what's happening there. Now, historically, you don't necessarily get those big rebounds from when you

#6 The Supply Problem Isn’t Going Away

SPEAKER_00 17:23

have uh pandemic, but when you are growing uh in immigration um and population too quickly, um it does put pressure on land supply and housing supply as well. And that's basically what we're seeing here. But historically, when it's when it's you know running at a certain ratio, uh, you don't see as much of an impact. And that's why historically it's been judged as a moderate impact. But you do have these, again, these types of events, which leads us into the economic shocks. So, and these external shocks um as part of that. So a pandemic is absolutely an external shock. The Iran conflict you can see here in terms of what these shocks can deliver. And in this particular case, it's delivered a higher spike in oil price. And oil is obviously an input uh cost into energy and plastics and everything else. And so now you can start to see how that's impacted the inflation rate in addition to the domestic demand that we already had, which is already a problem because we haven't got our productivity moving in the right direction. So you can see basically what's happened there in terms of the inflation level and then the cash rate adjusting for that. Now we don't know whether we're going to see one more rate rise. And so that's also impacting that sentiment and that confidence and that expectation as part of that story. And if we, you know, if we quickly go back and have a look at that FOMO story, you can see like um at the middle of August and last year, sorry, that we started to see um rate cuts. And when we started to see rate cuts, everyone was off to the races again. And then lots of regional property buying over the last couple of years as investors rushed into those markets uh thinking that they're making you know quick gains as part of that story. Well, that then plays itself out as we see when we're looking at the you know the cash rate changes and what happens in inside this story here. Now, we have all of the um the banks basically saying that rates will be on hold. Um, there is still some debate about another 50% chance of a rate rise at the time of recording this as part of those types of stories. But that's an example of where a black swan event, a global financial crisis, an Asian currency crisis sometimes can have uh effects in the cycle amplifiers

#7 Black Swan Events & External Shocks

SPEAKER_00 19:48

in the short term, but not necessarily affecting the directional impact over the long term. So when we talk about these, and again, this is a short episode, so I've we've covered a lot of ground on our Tuesday show, as we do, and it's a precursor for our Thursday show, where we'll be going a little deeper in terms of the min uh the mid-year property market outlook. But we can see how these variables are implementing and moving the markets in these particular cycles. So the key takeaway as I finish off this little fun educational session, this little solo session is this. Cycle amplifiers govern short-term market rhythm and tempo, but they never dictate the location's ultimate sustained land value destination. Okay, so, and we've seen that over time. I can show you historical charts, 40, 50 years as part of that story. But there is, you know, there is a serious challenge in terms of where prices are accelerating or where they're correcting based on those variables. So I'll summarize them quickly. Interest rates are going higher, credits harder to get your hands on, and now we've also stopped self-managed superfunds being able to borrow to get into residential property. So demand, demand tax policy is smacking demand, and we're not seeing uh enough policy reform in terms of adding to supply. So we're still seeing too much red tape, um, all of these additional conditions around the property's minimum standards, that's creating a lot of red tape. So we're not seeing that supply come through. Income and employment shock hasn't really played out so far in this cycle just yet, and may not. If the governments continue to keep spending to keep people employed, that may not be a thing. But if there is a broader economic shock, then those businesses will start to lay people off. And that obviously again has that uh short-term demand impact. And then expectations, sentiment, and speculation. Last year and the year before, lots of speculation, lots of animal spirits, property prices going higher uh quicker than they probably historically should. And then we've obviously then seen uh sentiment shock off the back of the government uh doing policy changes that they never told us about, that they lied through the election about, and then ultimately that's now really whacked expectations and

What the 7 Cycle Amplifiers Are Telling Us Now

SPEAKER_00 22:13

sentiment. And so that's causing an amplification of this correction in the market that we're seeing. And then we still continually to have these supply constraints. So cost of materials is going up, um, labor shortages in construction and those types of things is reinforcing that. And again, any other um escalations or development in the Middle East, uh, which also might have a flow-on effect and shock into the Australia, whether it's again on the um supply side inflation or demand side inflation, they also have an impact in that economic cycle. So there you have it. Again, I I've decided to put this in on a Tuesday leading into our market update because uh my special guest and I have a lot to talk about on Thursday when it comes to dissecting what's happening across the market. But if you've listened to this prior to coming into that session, you're gonna be in a really good space to understand what we're talking about. And you can start to see it playing out in the real data that we're seeing in the market at the moment. And that's what we you know will be sharing with you in our Thursday episode as well. So thanks everyone. Uh, hopefully you got some information out of this. And of course, if there's any questions or queries you have about this or you want to make your own comments about it, uh, you can always, you know, send us an email. You can send us a speak pipe um, you know, question via our website, thepropertycash.com.au. Um, or if you're watching this on YouTube or anywhere else where you can leave your comments. We do read them. Um, so please uh pass those comments on as well. So there you have it. Key takeaways, the cycle amplifiers govern the short-term market rhythm and tempo, but they never dictate the location's ultimate sustained land value destination. That comes down to the economic activity, the human interest, and the human behavior and those core drivers that's uh that we'll share with you in a future episode. Thanks for watching, and always remember knowledge is empowering, but only if you act on it. Bye for now.