Rising interest rates and new-found market volatility have people worried. Rattling share markets across the globe have seen Wall Street and the ASX plunge into correction territory. There is fear that stirring growth and inflation could force the world’s central bankers to raise rates faster than anyone expected. Europe is now all about higher rates and the US Federal Reserve is predicted to raise rates three times year. The market heavily analyses US Fed decisions, because they fundamentally move global asset values.

The important thing is always interest rates. To keep it simple, when business has to pay higher interest rates and consumers have less to spend, companies make less money and pay less dividends and share prices go down. This explains why some investors are selling off stocks and moving to what they see as a safer asset class — fixed-income investments. The days of ultra-low rates where investors warmly embraced the riskier share market, may be behind us.

So how does all this impact Melbourne residential real estate? For starters we are not like the US where jobs and growth are booming. Our economy is more sluggish, so we don’t expect much movement in rates until the second half of 2018.

So, where does property go from here? Are prices expensive? Well yes, in some cities. Are we at the top of the cycle? All signs point to yes in Sydney, with Melbourne closely following; but Perth appears to be bottoming. The fact that Australian property growth is not synchronised gifts the RBA with an ongoing and significant dilemma and we’ll cover this more in future blogs.

As the chart below shows, there is an undeniable relationship between the ASX and property prices. But, people still need a place to live. And even if the market is in serious trouble, there are other ways to short it.

Market Insights

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