Rising Prices Not "Weird"

According to our national newspaper, The Australian, the fact that property prices have continued to rise in spite of higher interest rates is, and I quote, “weird” – and apparently the people described by the newspaper as “experts” are scratching their heads about it.

The article that contained this nonsense was just another plank in the ever-growing pile of misinformation about real estate issues perpetrated by economists and journalists who don’t allow their ignorance of property issues to prevent them from commenting about them.

Journalist Anthony Keane is the personal finance editor at The Australian. And given that he has a fancy title and he works for this major standard-bearer Newscorp publication, the national newspaper, we the readers are entitled to expect him to know something about the subjects on which he pontificates.

Sadly, he does not.

In claiming that it’s unusual, indeed “weird”, for prices to rise when interest rates have increased, he is demonstrating that he’s not a student of history and he doesn’t waste any time on research before banging away on his computer keyboard.

He simply regurgitates the outpourings of economists who subscribe to the kindergarten analysis view that falling interest rates mean property prices rise and rising interest rates mean property prices fall.

That pretty much sums up the views of senior economists working for the big four banks and others like them. They continue to believe that interest rate trends dictate everything in real estate, although there is a mountain of evidence that confirms this is not the case – notably in the past 18 months.

Many of Australia’s most spectacular property booms have occurred during times of high and and rising interest rates, including in the late 1980s and the early years of this century, when mortgage rates were higher than now and rising, but market activity and prices kept on increasing.

Last year, we had the RBA continuing to lift the official interest rate – we saw a total of 13 monthly rises by the time they paused – and yet we had substantial price growth nationally, including boom-level price increases in several of our capital cities and also in several regional markets.

According to Anthony Keane, this represents what he calls “a new world of weirdness”.

The reality is that it’s not weird, it’s quite normal.

And the people who are apparently “scratching their heads” about it are not experts. If they had expertise, they would understand the dynamics in real estate markets and be unsurprised at the price outcomes.

People who are really bad at predicting housing markets and price outcomes, like the big bank economists, would rather claim the market is wrong than admit that they are.

The past 18 months in real estate has not been an aberration or a unprecedented maverick event – it’s simply another demonstration of the reality that interest rate events are NOT the prime influence on trends in real estate.

Right now there are far more powerful forces in play, including the imbalance between supply and demand.

So, is this (as suggested by The Australian) a new world of weirdness? 

No, it’s not, it’s simply business as usual in property markets across Australia, in which interest rates are a factor but not a particularly powerful force – in times when the biggest influence is the shortage of everything important in real estate at times of high demand, causing prices, rents and yields to rise in good locations.

Far from this being a case of “weird is the new normal”, normal continues to be normal.