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House prices are falling because interest rates are increasing. Oh dear.

inflation

House prices are falling because interest rates are increasing. Oh dear.

Interest rates are raised to tame inflation.

What it means by interest rate being used to tame inflation is to ensure inflation caused by people buying too much or speculatively will be reduced. When people are not investing, not buying then interest rates may be lowered to make it attractive for businesses to invest and people to buy. For example when rates are low, buying a property looks cheap. Okay, in comparison to the rates I used to pay for my first property, the current rates are extremely low. Not even half by the way.

With countries all trying to tame inflation and also to keep up with that largest economy in the world which is increasing rates like it’s a race, one country’s property market seems to be affected. Sydney’s property price is down 10.1% in eight months and this equals to a loss of AUD116,500 (RM355,758). For the full article read below:

Article in forbes.com CoreLogic’s daily home value index shows that Sydney’s highly leveraged property market home values are down 10.1% in eight months. This reduction is equivalent to roughly $116,500 lost in Sydney property values since the city hit its most recent peak value in February 2022.

CoreLogic notes that Sydney’s decline comes after a growth of 27.9% or roughly $252,900 in the city’s property values from the “COVID-trough to peak”.

The CoreLogic figures show Melbourne’s values are second to Sydney, falling -6.4% since January 14 while Brisbane is down -6.1 % since its June peak. Meanwhile, Hobart and Canberra are down -4.7% and -4.4% respectively since their month-end peaks, and Adelaide and Perth have both declined less than -1% since their highs. Full article here: Article in forbes.com

When home prices are just too high, it needs a breather

People often ask if home prices will continue to increase. First of all, if it’s already way above fundamental; people’s salary versus all the available home prices, then we need to be very careful with what we buy. However, if the general market condition is normal, then yes prices would keep rising because inflation will continue to be around.

People will be paid higher because the value of money gets smaller. Yes, the sooner you realise that RM is not the ONLY currency to fall versus USD, the clearer your mind would be. It’s cheaper to travel to Japan if you are using ringgit now versus 1 year ago. In case you did not know. When people are paid higher, they can spend more, prices can also rise a little more. This is why the construction cost, the land cost, the material cost and the salary will continue to push up home prices. Slowly but surely.

Please do not rise by double digits, I do not need

Just imagine however if the home prices rose by double digits in one year, it SHOULD stop going another double digits the next year lah. Else, who can afford? If no one could afford, then we will have another mortgage crisis lah. Please do not be greedy and please understand that as a property investor, I just need the property price to rise at the same pace of inflation, that’s all I need. I do not need and do not want a double digit price increase every year. NO…..

Happy understanding.

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Charles Tan The Founder The Writer Kopiandproperty
Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.

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