The Next Property Boom Is Coming - Here’s Why Smart Investors Are Buying Now

The Next Property Boom Is Coming - Here’s Why Smart Investors Are Buying Now

The Australian property market is entering a crucial moment that presents a rare opportunity for smart investors. Conditions are similar to those seen before the 2021 property boom, with expected interest rate cuts and a worsening housing shortage creating strong potential for growth.

During the early pandemic, the Reserve Bank dropped the cash rate from 0.75 percent to a record low of 0.1 percent, which triggered rapid price growth. Now, major banks such as NAB forecast the cash rate could fall to 2.85 percent by the end of the year. This would increase borrowing power and improve investor cash flow.

Even during the rate increases between 2022 and 2023, high demand suburbs still saw growth of 50 to 60 percent. Last year, only 171394 building approvals were recorded, far below the target of 240000. To reach the federal target of 1.2 million homes in five years, the country needs to build 277000 homes each year, which has never been achieved before.

Census data shows the average household size has dropped from 2.6 to 2.5 people, creating demand for 391000 more homes. Planned annual migration of 185000 people adds to this pressure.

Current property prices could soon look like a bargain. As rates fall, buyer competition will rise. Contact us today to explore strategic property investment and build long term wealth.

Chapters

• 0:00 Introduction to Rate Reductions
• 1:27 Historic RBA Cash Rates
• 4:20 Rate Predictions Post-Election
• 8:50 Housing Shortage and Building Approvals
• 11:35 Growth Pressure and Call to Action

Transcript

Speaker 1: 0:00

Welcome back to another episode of the Tailored Property Wealth Podcast. My name is Casey Taylor, I'm the host of the podcast, and in today's episode, we are going to be talking about the upcoming rate reductions and how that is going to lead to a property boom. We're going to be talking about rate predictions, the historic RBA cash rates and what kind of has influenced the property market over the last five years. We're going to be talking about inflation data. We're going to be talking about the shortage of homes and building approvals, and we're going to be talking about borrowing capacity and improved cash flow. So let's get into it today. I just want to start off with. Just rate reductions alone is only one metric, and one metric alone isn't going to, I guess, really positively sway things or negatively sway things one way or another, and we'll get to that in a little bit of time. But it's the rate reductions, in combination with other factors, that's going to lead to the pressure cooker for growth that we're continuing to see. But it's really going to ramp up even further and really targeting the right location right now, in 2025, is going to set you up for making some really strong capital growth over the next couple of years and it's making those educated decisions in the right locations, or the right strategy in certain locations, to really get that performance. So the first thing we're going to go through is the historic cash rate as per the RBA, over the last five years and going back to March 2020, this is when COVID came around you might have heard of that before and there was a lot of negativity in the marketplace, doom and gloom. There was people in Woolworths fighting over toilet paper, if you remember correctly. So what the RBA did in February of 2020 is they dropped the cash rate 0.25%. Now, at that time it was at 0.75% and it dropped to 0.5%, which is historically low rates, and it went on even further than that, which we'll touch on in a moment. That was the government's way, or the RBA's way, of kind of starting to keep the economy going, and it's just a lever that the RBA pulls right to influence the economy. Now, as things continued on May 2020, 0.25% drop again to the historic low of 0.1%. So, from February to November 2020, there was a rate reduction of 0.65% Now not a massive reduction, but as a percentage of what that original cash rate started at. It was massive right and that was to continue to stimulate the economy. A lot of people kind of sat on their hands, which was a perfect opportunity to go out there and purchase property at that time, if you just understood the fundamentals. And we're in that same kind of situation right now. So things at the end of that year property-wise started to really heat up, and that was because the cash flow had improved, borrowing capacity had improved because of those rate reductions and the fundamental supply and demand issue we still had going on. And then, if you remember correctly 2021, we had a nationwide property boom. Things were going bonkers and we're kind of in that position five years later.

Speaker 1: 3:52

In certain areas, as we continue to see these rate reductions take place, people are going to be able to borrow more money. Their borrowing capacity is going to improve. So that's going to mean some people who couldn't purchase may now be able to purchase and they go out and take action. Or some people have been waiting for their cash flow to improve a bit more before they go out and purchase. So in a couple of months time, as these rate reductions flow through, you're simply going to be competing with more people in a couple of months time than you are today. So it's something really important to remember. There's people overpaying on property by massive amounts and that's where finding those off-market properties will be key moving forward in this situation, because if it's going to market, you're going to be competing with so many people Now, as that kind of took place.

Speaker 1: 4:43

On the rate reductions on the flip side of things, from 2022, we started to see rates increase because of the inflation data that had spiked and because of the massive amount of spending. There was a whole heap of helicopter money thrown into the economy to get it stimulated and get people spending money, and that's where inflation then rose. Now, from 2022 to 2023, we experienced rate increases. First increase of May 2022, and that increased to 0.35% as a cash rate and that was a 0.25% increase. We then went on to see rate increases all the way through to November 2023, where the rate went to the cash rate went to 4.35%.

Speaker 1: 5:34

Now, as those rate increases started to take place, it does flush out some of the people who potentially would have taken action. Now we were buying property all throughout the rate increases for clients and personally ourselves and there was massive growth to be had during this time, even though rates were increasing if you purchased in the right location. So in that three-year period from 2022 to now, some of our clients and personally ourselves, have made 50, 60%. So, although rates increase, there is still capital growth to be had and it comes back to that supply and demand issue. It comes back to the affordability piece understanding the income levels in an area and the median value, and understanding that people's borrowing capacity in those areas aren't maxed out. So those prices have room to grow and continue to grow. So affordability is always important to understand.

Speaker 1: 6:36

Now the question is if we can go through a rate rising cycle in certain areas and property prices continue to increase. What's going to now happen, as we see rates reduced by 1% or if not more, as per some of the big four predictions, that is going to take place and we're going to experience capital growth. That is extremely solid if you know where to look and you're purchasing in the right locations and the right property in those locations. So that is super important to understand. Now NAB have come out post-election. They're predicting that in May we're going to see a 0.5% rate reduction and then, through until the end of the year, rates are going to drop as low as 2.85% as the cash rate and then we're still going to see another rate cut in February of 2026, bringing it down to about 2.6%. So if you're out there right now as a borrower, your cash flow is going to dramatically improve, your borrowing capacity is going to improve and you might be able to purchase another property now, or there's people out there who can purchase and they might not have been able to before. So things are going to really start to heat up in those right locations. So it's important to remember, and pretty much all the big four are now predicting rate reductions throughout the remainder of the year.

Speaker 1: 7:59

The inflation data's out. It's now within band of that 2% to 3% target and arguably and this is based on history the RBA. Typically they don't raise interest rates far enough and they don't reduce them fast enough. They are too slow to react sometimes and that's why, with this inflation data release this month, nab believed that if the RBA had that information back at the start of April, they would have reduced 0.25% and because of that, they'll double it up with a 0.5% in May. Time will tell a couple of weeks to go. However, people are talking about a 0.5% reduction. At least a 0.25% is looking pretty promising. That's the rate reductions, the borrowing capacity, some inflation data in there.

Speaker 1: 8:49

But there is two more things that we'll quickly focus on today, and it's the simple supply and demand in combination with this improvement to rate reductions, and that is shortfall of homes and building approvals for the federal government's target of 1.2 million homes over the next five years. It's a great target. It's great that they're understanding that there is a problem right now. However, there is going to be some work that needs to be done to get to those targets. So only 171,394 building approvals were recorded in 2024, with a goal of 240,000 per year. That's massively under target of 70,000. Now, to catch up on that target and still meet the 1.2 million homes, it is 276,994 new homes we need each year over the next four years. Now, historically, I think we've only done a maximum off the top of my head I haven't looked at the data recently of around that 170,000 homes. So to hit 240 is very ambitious, let alone the 276,000. So Right there, looking at that data, we have an issue with supply.

Speaker 1: 10:11

We don't have supply keeping up with demand. Now, with migration coming into the country, there is an increased amount of demand. And there's some census data as well that I want to touch on, because there is a small change in the average household which requires us to have far more homes, and that is just continued pressure on the supply. So, according to the ABS census, in 2021, the average household dropped from 2.6 to 2.5. So from the 2016 census to the 2021 census, it dropped just 0.1% on average per household. Now, if we calculate that percentage drop on the population in 2021 of 25.4 million, pretty much this equates to requiring 391,000 more homes. Just with that slight percentage drop, because more people are spreading out over homes, we require more homes. So that is a massive, massive number of additional supply that we require for the demand.

Speaker 1: 11:25

Now, when the goal for the 2025-2026 financial year is 185,000 net migration coming into the country, that is just added supply that we need further homes for. So that's pretty crazy to think about. We've got massive amount of demand coming in. We've also got a supply issue just with the population we have currently. So if we're not keeping up with the approval target and then the supply level we have an issue with, and then that demand coming in is increasing.

Speaker 1: 11:59

We have a pressure cooker for growth. So if we have rates reducing, we have that fundamental supply and demand issue. Demand is outstripping supply. We know that that creates scarcity, creates the pressure cooker for growth. There is a massive amount of traction that's going to continue to push prices higher.

Speaker 1: 12:23

If you fundamentally understand this, you will go out and you will purchase property because you will reap the rewards. The reality is that today prices are on discount to what they're going to be in the years to come. If you're purchasing in the right location and understand the metrics, that's pretty much it for today there is a property boom coming because of the rate reductions and the combination of the supply and demand issue we've got going on. Demand is still outpacing supply. It's going to create scarcity and it's going to create growth. Go out there, make educated decisions and if you're not sure where to invest, you want help to make sure that you really smash the purchase out of the park. Set yourself up for another purchase in the next 12, 18 months to go again and leverage that equity from the performance. Reach out to us. We can have a chat about how we can help you execute on those property goals. Thanks for listening. We'll see you on the next episode.