Don't miss out on understanding the crucial market shifts - whether you're an investor, homeowner, or market enthusiast, this is a must-watch!

If you have any questions about the property market in 2024, ask. We're here to help!

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LATAM Airlines is Skytrax’s Best Airline in South America and a proud sponsor of Wealthi. LATAM Airlines is committed to contributing to the protection of South America's ecosystems for the next 30 years through sustainability initiatives including eliminating single-use plastics by the end of 2023 and achieving zero-waste to landfill by 2027. Click here to get more information about the LATAM Airlines sustainability strategy.

LATAM Airlines is Skytrax’s Best Airline in South America and a proud sponsor of Wealthi. LATAM Airlines is committed to contributing to the protection of South America's ecosystems for the next 30 years through sustainability initiatives including eliminating single-use plastics by the end of 2023 and achieving zero-waste to landfill by 2027. Click here to get more information about the LATAM Airlines sustainability strategy.

LATAM Airlines is Skytrax’s Best Airline in South America and a proud sponsor of Wealthi. LATAM Airlines is committed to contributing to the protection of South America's ecosystems for the next 30 years through sustainability initiatives including eliminating single-use plastics by the end of 2023 and achieving zero-waste to landfill by 2027. Click here to get more information about the LATAM Airlines sustainability strategy.

Dive deep into the key indicators and global trends affecting the real estate market, both in Australia and internationally. Learn why the US 10-year government bond yields are crucial to watch and how they could reshape investment strategies in real estate.

If you want to learn more about the real estate market and check the current opportunities, reach out to our team:

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LATAM Airlines is Skytrax’s Best Airline in South America and a proud sponsor of Wealthi. LATAM Airlines is committed to contributing to the protection of South America's ecosystems for the next 30 years through sustainability initiatives including eliminating single-use plastics by the end of 2023 and achieving zero-waste to landfill by 2027. Click here to get more information about the LATAM Airlines sustainability strategy.

LATAM Airlines is Skytrax’s Best Airline in South America and a proud sponsor of Wealthi. LATAM Airlines is committed to contributing to the protection of South America's ecosystems for the next 30 years through sustainability initiatives including eliminating single-use plastics by the end of 2023 and achieving zero-waste to landfill by 2027. Click here to get more information about the LATAM Airlines sustainability strategy.

The latest data from the ABS shows that Australia has experienced its fastest population growth since 2008, with a total increase of 1.9% (496,800 people) in the past year.

This is the largest population increase on record! And overseas migration has been the major contributor to this growth, resulting in a net boost of 387,000 people.

In this video, our Managing Director, Domenic Nesci, highlights the importance of paying attention to population trends for property investors. While population growth may not affect premium property markets significantly, it has a significant impact on more affordable areas and regions with new development projects.

By tracking population growth and real estate demand in specific locations, investors can make informed decisions about property investments.

If you want to learn more and gain further insights into the property market in Australia book a free meeting with our team today:

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3 years ago · Tiffy Rubinat

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Comprar una casa con $25k 👉🏽🏡

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3 years ago · Tiffy Rubinat

In this month’s construction update, we’re excited to share that construction activity across Wealthi’s pipeline of properties has been consistently strong.

This construction update comes in line with the market update from our Managing Director, Domenic Nesci, where he discussed with CoreLogic's Head of Research, Eliza Owen, about recent migrants coming to Australia who are typically moving to Melbourne's inner suburbs, as well as the eastern and western suburbs of Melbourne.

The team recently visited Melbourne to explore exciting investment opportunities across these areas. Book a free consultation with the Wealthi team to learn more about these opportunities.

Book a free consultation

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3 years ago · Tiffy Rubinat

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3 years ago · Tiffy Rubinat

In this video, Domenic Nesci, the Managing Director at Wealthi, and Eliza Owen, the Head of Residential Research Australia at CoreLogic, share valuable insights about market trends and dynamics.

Here is a summary of the key points:

• Following a period of decline, the property market has experienced a rebound, demonstrating three consecutive months of price growth. This positive trend suggests that the market has surpassed its lowest point.

• Supply and Demand: There is a shortage of housing supply in Australia, both in terms of new constructions and listings. This scarcity, coupled with strong demand from first-home buyers and net overseas migration, is driving up prices.

•  Interest Rates: The trajectory of interest rates will have a significant impact on the housing market. Changes in rates could affect buyer confidence and the willingness of sellers to enter the market.

• Regional Markets: Some regional markets are experiencing growth due to factors like net overseas migration and rental market competitiveness.

• Future Outlook: The upward pressure on prices is expected to continue into the next year, with low supply levels and sustained demand. However, potential headwinds, such as mortgage rate increases and unemployment, could impact the market.

If you want to learn more and gain further insights into the property market in Australia book a free meeting with our team today:

Book a free consultation

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3 years ago · Tiffy Rubinat

In this monthly market update our Managing Director, Domenic Nesci, discusses the strongest monthly growth in property prices since 2001 and explores the persistently low housing supply and its impact on the market.

Key points covered in this video:

• Property prices: Recent data shows a significant rise in home values, with Sydney leading the recovery, experiencing a 4.8% increase, equivalent to $50,000 in the past three months.

• Low housing supply: The market is facing a shortage of available housing stock, with inventory levels 15.3% lower than last year and 24.4% below the five-year average.

• Rental market and high demand: The lack of supply has led to increased competition among buyers and renters, and rising rental prices, causing a sense of FOMO (fear of missing out) in the market.

• Future prospects: Despite challenges, we will discuss opportunities for home buyers and investors, considering the growth potential in the market and the impact of interest rates and infrastructure investments.

With limited supply, growing demand, and promising growth prospects, now is the time to take action. If you're interested in learning more, book a call with our team today.

Book a free consultation

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Get ready for the Melbourne property market to explode! Rents are increasing, and more migration is coming back.

This presents a golden opportunity for property investors to get in on the action and capitalize on the booming apartment market in Melbourne.

It's the perfect time to jump in and make a smart investment move!

Watch Dom's latest video analysis to learn more about this exciting market. And if you have any questions, our team of expert advisors are here to guide you every step of the way. Book your free meeting today and let's get started on your investing journey.

Book a free meeting

Domenic Nesci is an Author of ‘You Won’t F**k It Up’, and Wealthi Co-Founder. Domenic shares daily insights into taking the leap into buying your next investment or home. Follow Dom on LinkedIn and TikTok.

Take for example Sydney auction clearance rates over the weekend which jumped back into the mid 70% range. That’s in a month following a ninth consecutive interest rate hike and scrutiny of the Reserve Bank of Australia’s actions which led its governor to front a panel scrutinising his actions. The main driver behind Australian house prices holding up in recent months has been the limited supply environment.

We’ve written about this over the past few weeks, including our note last week which touched on building commencements as lead indicators. We draw on a comparison with the US market and showed that Australia’s supply pipeline has been trending down for some time.

According to Australia’s peak housing industry body HIA, new home sales (not permits which we discussed last week) are down around 50% compared to the same period last year. New home sales are now averaging around 3,000 per month compared with 12,500 per month during the peak of the pandemic. We won’t feel the most recent pullback in sales for another 12-18 months.

Another factor to watch in housing supply is material costs, which have been trending down in recent months but are at risk of inflating again as China opens from its long lockdowns. Commodities like iron ore are good lead indicators for Chinese demand and Australia is a major iron ore exporter.

The iron ore price is now back up from its mid-year lows last year as Chinese industrial activity starts to ramp back up. Copper demand is also rising, a lead indicator of what’s to come in other commodities.

We can go on and on about the different types of commodities and how they are expected to perform. But our point this week is to highlight that housing is a function of both demand and supply. Many people miss the supply problems, focusing only on the demand. What the data shows is that supply is falling off a cliff and becoming a lot more expensive.

This has a direct impact on house prices, despite rising interest rates. Housing is one of those assets that we can’t live without. You can live without BHP, Apple, Bitcoin or Gold. But you cannot live in a civil society without housing and shelter.

We continue to think that house prices have bottom, or very close to bottoming and that any interest rate rises in the near future will be driving by strong jobs and incomes, which in turn are key housing drivers. Commercial real estate has similar fundamentals, but with a lot more volatility. We’ll be talking about that next week.

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In the US, housing starts measure the activity of newly constructed homes as they progress through the construction and sales process. US housing starts famously peaked at over 2 million per month before the 2009 crash and bottomed at around 500 thousand in the preceding years. They have seen been on a gradual rise.

Housing starts have come off over the past few months, no doubt a response to the rising interest rate environment and uncertainty if the US economy in 2023. The good news here is that the market is already self-correcting and given the steady increase in supply over the past few years, there seems to be enough housing stock in the market to meet rental and social demand. December housing starts fell to around 1.3m and we get the January numbers this week, which could show another fall.

We think US housing starts will probably bottom at around 1m towards the middle of this year, which again is a healthy level of balanced supply and demand. This rate will be half the amount of new home construction experienced before the last blow up, again important for maintaining house prices.

In Australia, the situation is slightly different. We tend to look at dwelling approvals which are slightly different because they don’t necessarily indicate if the home has progressed into constructed. Instead, the assumption is that approvals will eventually proceed to construction most of the time, with some lag. Approvals and permits are our main lead indicator into the future supply of new housing.

Supply has been a lot more constrained in Australia and as you can see from the chart above, we haven’t necessarily had the spike in construction activity seen in America over the past couple of years. In fact, Australian dwelling approvals have been tracking down since the pandemic. We’re now back to an average of around 15 thousand per month, which implies an annual construction run rate somewhere in the order of 180 thousand new homes a year.

Australian housing supply is impacted by zoning, construction costs, a tight labour market and now the impact of rising interest rates. Australian mortgages have a much smaller fixed component than the United States, which means RBA movements are felt quicker and have more impact.

The point is, housing supply is just as important as housing demand in determining where house prices go. Even in a rising interest rate environment. Here are some comments from a real estate conference we attended last week.

Our construction sources in Australia tell us that while building materials have stopped or moderated from rising in price, they are still significantly higher than their pre-pandemic levels. An unemployment rate in the mid 3% range also makes labour very expensive and rising rates complicate financial feasibilities. We’re seeing a dwindling supply pipeline on the horizon, despite state and federal government initiatives to increasing housing supply.

Official building permit and approval data confirms the same.

So while the US housing supply picture is coming off a much larger base, Australia is still in a very different league and soft to begin with. This explains why house prices might behave differently between geographies and drawing comparisons is fraught with danger.

If you’re thinking about property investing this year and on the fence, it’s worth speaking to the Wealthi team to see what type of opportunities we’re investing in. Start here.

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In an official announcement on Saturday, the Chinese Service Centre for Scholarly Exchange said academic degrees and diplomas would no longer be recognised if the study was undertaken online.

“In order to effectively protect the interests of students who receive overseas education and maintain the fairness of education, our centre (CSCSE) will no longer provide certification/accreditation for foreign diplomas and degrees obtained during the spring semester of 2023 (Autumn semester of the South Hemisphere) and beyond,” the directive says.

“Whether the school/university term/semester has begun or not, students to return ... as soon as possible.”

The AFR notes that around 700,000 Chinese students travel to overseas universities to study each year, mainly to the US, UK, Canada and Australia. A total of 150,000 were enrolled in Australian institutions mid-last year, of which the lion’s share were university students.

This will all have a significant impact on the domestic rental market as students add to an influx of migrants, business travellers and expats returning home post pandemic. Rental markets are already tight with limited supply due to the pandemic and cost pressures across the building industry.

According to SQM research, in Sydney, rents increased across all homes by 2.2 per cent during the December alone and an eye-watering 30.1 per cent for the year. Melbourne rents rose 1.7 per cent in December and 24.7 per cent for the year while Brisbane was up 1.7 per cent for the month and 23.8 per cent for the year.

The key takeover for property investors is this — rising interest rates are being offset by rising rents. It will take at least 5 years before any meaningful supply can offset strong rental demand due to the nature of the building cycle and time it takes for zoning and applications to complete.

As we’ve been saying since mid last year, now is a great time to be adding to your investment portfolio and supporting the creation of new homes, many of which are highly demanded by the rental market.

While strong rental demand is good for investors, it does add more social angst for many vulnerable people in our community who are struggling to deal with high cost pressures. We must keep them in mind and never lose sight of the importance of a well planned rental system to keep landlords, tenants and all stakeholders happy.

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A jobs market that is too strong creates inflationary pressure, particularly in geographies like Europe where the fundamentals are a bit different and people tend to stay in jobs longer than say the UK or United States. Australia is probably somewhere in the middle. A strong Australian jobs market means two things for real estate investors.

First, it means people can afford to pay higher mortgages. The home is the last asset to sell and most households will probably cut back on many things before selling the family home due to rising mortgage costs. Especially if they have strong employment prospects. That explains why listings in Sydney and Melbourne continue to be very low by historical standards.

According to the latest data from SQM Research, homes listed for sale in Sydney fell by 15% in December compared to November.

People that can afford to hang on are doing so because there aren’t many other alternatives.

The second impact of a strong jobs market is pressure to increase migration, and that is exactly what is starting to happen in a post-pandemic world. Australia’s net overseas migration is now back to pre-pandemic levels. Migrants from around the world are going to flock to countries with strong employment, adequate healthcare systems and places with a competitive standard of life offering.

Strong overseas migration is very different to interstate migration. We saw the seaside suburbs enjoy a boom during the pandemic because people moved to places where they could enjoy the outdoors and work from home. Migrants coming to Australia want to connect into communities and hubs, offering them the greatest chance of settling in. The big cities are on their way back.

We’ll continue to see strong rental demand for Sydney and Melbourne, particularly apartments, which are a cheaper and more agile option. While pandemic interstate migration drew people to places like the Gold Coast, that trend could reverse as the bigger cities get back.

Take a walk down Sydney or Melbourne CBD on any weekday and you will see that cities are making a comeback. We might not be back to a 9-5pm, 5-day workweek, but big cities aren’t dead either. Sports, community, arts…these things are all pulling points to get people back into the major cities once again.

Things are coming back to life and we could be on the cusp of a new property cycle which usually starts when everyone is consumed by the addictive, bad news cycle. Now is the time to be looking forward at the next migration boom and investing accordingly.

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It’s easy to get emotional over inflation and higher costs but it’s equally important to see this as a trend that, like all other things with life, moves up and down. We enjoyed low inflation for the past 20 years, mainly thanks to China becoming the world’s factory and producing goods at rock bottom prices. A lot of that changed during the pandemic, but we’re slowing going back to life as normal.

The big news over the holidays was that China is opening back up, that will have a huge impact (positive) to the global economy. I wrote about that last week, click here to read.

Inflation was the big theme in 2022 but I think there is some change in the air. We saw evidence of that last week with US inflation coming in much lower than the past few months. That sent the price of everything higher — stocks, gold, bitcoin. Investors are looking at December’s number as evidence that perhaps prices have stopped rising and eventually interest rates will stop rising too.

Australia, Canada and Europe generally lag the US economy by a few months. If the trend in the US remains (and markets are suggesting that it will), we could start to see inflation coming back in these countries also by say March/April. That means central banks will be mindful of their interest rate decisions.

So here is how we think it will play out.

I think we’ll see the RBA here in Australia move one more time by 25 basis points and then wait to see what the data suggests. We’ll probably start to see inflation moderating, much like America, especially as recent interest rate rises start to bite and with energy prices having fallen from their previous highs. The RBA will pause for at least 6 months until get its evidence that inflation is under control.

Then we will get a change to wording and we could potentially start to see talk of interest rate cuts towards the end of next year.

Now I don’t have a crystal ball and this is one hypothesis which may or may not happen. But experience has taught me to always look through the valley and remain focused on the future, not the past, especially when it comes to investing. What happens in the US market and with inflation in particular will have a profound impact on interest rate movements in all other markets.

The residential real estate market will move with interest rate expectations. It’s not today’s rates that matter, that’s already priced in. It’s about interest rate expectations of the future. Once the market gets a hint that rates could have potentially peaked and likely to fall (in the next six months), the market will start to bottom and show signs of growth again.

The newspapers and 6 o’clock news headlines in December were all about how much property prices have fallen. What they don’t tell you is that they have fallen 10% after rising by 40% in the space of a couple of years. They also don’t tell you just how much more expensive it is to build a house compared to a few years ago.

That’s why I believe the best time to buy straw hats is in winter and the best time to buy real estate is when the market has softened, not when the market is hottest. Make sure you subscribe to get all our updates as we publish them to our thousands of subscribers every week.

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Many of us are constantly looking over our shoulder for the next bad news story to emerge. This is understandable and totally normal, the pandemic was a life changing period for many of us.

I’ve written about when and how to panic as an investor previously (If you must panic, panic early) There’s an art to it.

Most are only now starting to worry about inflation, when the time to panic was when rates were at zero and inflation was non-existent.

While it’s good to be paranoid as an investor, and always look out for fear, the problem with this approach is you can miss the good news right in front of you.

There’s a lot of good news going into 2023 — the jobs market across developed economies is extremely strong, central banks are on the ball when it comes to inflation and China is starting to open up from its lockdown phase.

The world’s largest economies are in the early days of a major recovery.

We have some amazing technology emerging. The AI revolution, combined with the shift to cleaner energy, could completely transform our day-to-day lives and improve economic productivity. Innovative is accelerating.

We can often get caught up in an echo chamber of bad news, and I think that’s the biggest risk for investors going into 2023. If you must panic, panic early.

Panic about missing the good news.

Interest rates are rising because the economy is strong. Rate rises will soften the economy, jobs are starting to be lost. But we’re coming off a very strong base.

I’m not blind to the risks, I’m just equally open to the opportunities.

Australia remains one of the world's most desirable investment destinations and the limited supply of new residential stock coming into the market means real estate investment is still a very attractive wealth creation strategy.

Don't get caught up in the negativity. Embrace the opportunities that lay ahead.

Merry Christmas, Happy New Year from all of us at Wealthi and we wish you a prosperous start to 2023.

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Most of the mainstream media has been focused on China’s handling of the pandemic. I think that’s totally irrelevant because China is such a large and vast country that we only see a fraction of what is really going on. We also see things through a single prism, often with political biases.

But that’s not the point of this note. My point is to get you focused on a major investment theme that is likely to have a significant impact across all investment classes, including residential real estate. Particularly in Australia.

There have been significant signals that China will open up quicker than expected over the past week. Keep an eye on this over the holiday break. In my note last week, I pinpointed my four key investment themes, all of which will be driven by China’s opening.

Peter Esho

Building the 2023 investment plan

At the end of each year I like to sit back and think about the key themes that will dominate markets in the coming period. It’s so much about predicting but always staying on our toes as investors, being proactive rather than reactive and thinking about the future before it arrives…

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3 years ago · Peter Esho

Most of 2022 has been characterised by rising interest rates and money flowing out of the financial system. That is why real estate prices have come down a little. When money is cheap and flowing, residential real estate does well. When money is tight, the opposite. It’s all about liquidity.

We’re often trained to focus on the US, which is the world’s largest economy. But we sometimes ignore the impact that China has on the global stage, particularly when it starts to have a significant impact on investment flows.

I can go into more technical reasons why I’m so positive about China, such as the growth in Chinese money supply in recent weeks and rising credit impulse. But I won’t, because I want to keep it simple.

The key thing to understand is that we’re no longer in a zero interest rate environment. We’re back to a more balanced rate setting, which isn’t a bad thing. We need to be used to mortgage rates in the order of 3-5% and not 1-2%, which was ridiculous. The key to survive and thrive over the next 5-10 years is to focus on income growth, real estate assets that will BENEFIT from rising interest rates.

Real estate income (rents) are rising. They will continue to rise further once China opens up and commodity prices like iron ore, coal, gas, gold, zinc, lead, nickel and rare earths start to rise too. The jobs market is still very strong and unemployment is at levels we haven’t seen ever.

The best residential real estate will be those located in prime hubs. Wealthi has been doing a great job in finding income growth opportunities across Australia. We particularly like Melbourne, Canberra and Perth.

Take this particular dual key example, located in one of Perth’s fastest growing regions. For $680k, you get two incomes — one from a 3 bedroom home on the left and the other from a 2 bedroom home on the right, build on the same 595 sqm block. The yield is 5.5%-6.0% on today’s rents. If commodity prices continue to rise, Western Australia is perfectly placed to benefit.

This is just a glimpse of how we think and how we’re investing at Wealthi. We focus on the $450-700k price point because that’s the part of the market that is least impacted from rising rates and where rents are likely to rise the fastest.

If you want to know more, including details in the example above, book a time with the team.

Like the FIFA Football World Cup.

One of the most interesting themes playing out is the surprises, both Saudi Arabia and Japan shocking traditional heavyweights Argentina and Germany in the first week. Football is a world sport and often a microcosm for everyday life.

We can’t read too much into first round results and as you can see, things are quickly changing in the second set of games. But football results remind me that we typically live in a very western, insular-focused bubble. The entire world is constantly changing. Every nation has its own unique aspirations and realities. The World Cup shows us that rate of change.

We are reminded that the world doesn’t revolve around us. So are these results really surprises?

Saudi Arabia has one of the world’s fastest growing populations under 40 years of age. Two thirds of the population are under 40. There has been a huge amount of economic and social reform in the country, which will no doubt continue. Most of the change we will never see or understand. But it is happening.

Japan is also a significant global player, although the demographics are not as favourable to Saudi Arabia. Probably the exact opposite. Still, Japan is the world’s third-largest economy (larger than Germany) and home to 125 million people.

My point this week isn’t a football analysis or comparison. Instead, an opportunity to stand back and look at thematic changes that are likely to dominate investment markets in the decades to come.

Possible ones that we often miss because we live in a confirmation bias, blinded and clouded world. Particularly real estate.

Australia & our relationship with China

The recent G20 summit could be an important pivot point for Australia and China. We perhaps saw some signals of what to expect next year as China, on its own terms and within its own sovereignty, decides to relax lockdown measures. There’s a sense of change in the air and being in Australia, we perhaps see these things sooner than others.

China and Western relations really started to deteriorate in 2018 when the former Trump administration initiated the computer chip wars. That sent things into a spiral and we are now entering the fifth year of the impasse.

I explore the implications of China’s economic rebound more in my audio post last week, which looked into this in more detail:

The key premise is that China will make a comeback on the world stage and it comes at a time when we’re also going through a one in a lifetime energy transition. There are around 1.4 billion vehicles in the world currently powered by fossil fuels. In comparison, we estimate 6-7 million electric vehicles in the world and the number is expected to rise to 150-200 million by 2030. The adoption curse is enormous.

China is the world’s largest manufacturer of electric cars and a major player in the supply chain for critical components. Every new car will need raw materials.

And that’s only cars, the ramifications for our entire energy ecosystem are enormous. Iron ore, lithium, nickel, copper. The transition to a cleaner economy will require all of these inputs.

That’s why we’re so bullish on Australia. Not only do we have world-class resources, but also a cultural and geographic connection to Asia unlike Latin America or Canada. Around 6% of Australia’s population have Chinese ancestry and the recent political tension has highlighted a sense of unease among the social and business community fabric, which policymakers are aware of.

In some parts of metropolitan Sydney and Melbourne, Chinese language is spoken by 10-15% of the population.

Australian property is underpinned by strong economy

An investment in Australian real estate is really an investment in the country’s future economic fortunes. We can look at the weekly auction rates, price movements here and there all we like. At the end of the day, Australia is perfectly placed to become the Saudi Arabia of the Pacific, a term I learnt from a key mentor of mine when I was starting out in the investment space 20 years ago.

Australia attracted the second-highest amount of millionaires migrating out of their home country. The smart money wants to come here.

A normalisation of Chinese relations, coupled with a weaker US dollar and higher commodity prices, is one of the most compelling investment themes to drive Australia (and to a lesser extent New Zealand) economies over the next decade.

That could be the cushion to provide a soft landing from rising rates. Australia might not be winning at the football world cup, but it is competing and we always punch above our weight.

Never ride us off. Go Australia.

People with strong jobs are less likely to force sell their properties and more likely to expand their investment portfolio when markets soften.

The housing market is the business cycle. Both go hand in hand. Central banks around the world are raising interest rates because employment is strong, driving inflation higher. Employment is not the only driver, but it is a huge driver.

Let’s take for example the Aussie jobs report last week, which showed that unemployment fell to a record low 3.4%. That number would have been unimaginable a few years ago. The chart below puts things into perspective, going back to when I was born in 1984. It’s never been this good for employees.

Australia’s unemployment rate is not the only number that matters, though the US and UK are in similarly strong positions. Europe is the outlier and Canada has a less impressive number, but generally speaking, the global economy is in a much better position than we previously thought.

My point in this note is to be careful that you don’t get caught in a negative news cycle echo chamber. If you look for negative news, you’ll find it. It’s very important to look at the data objectively and then form your view. I’ve been wrong many times. There’s nothing wrong with being wrong and changing your mind.

Legendary investor George Soros once said “…it's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong…"

So while some will look at interest rates and think that they will automatically destroy the housing market, we must also look at rising rates as a sign that the economy is strong and the jobs market in many economies, including Australia, is extremely robust. I wrote more about this in my note last week titled “What if the global economy is much stronger than expected”.

Peter Esho

What if the global economy is much stronger than we think?

One of the most important things to do as a macro investor, looking top down to determine investment themes, is to listen to the data very closely. Data changes from week to week, month to month. Markets are constantly pricing expectations, often wrong and having to recorrect…

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3 years ago · Peter Esho

Most major metropolitan real estate markets have already gone through a correction in the order of about 10-15%, which is normal given such strong growth in recent years. Residential real estate is not the crypto or stock market.

The global trend is similar. A colleague of mine based in New York recently went onto Fox Business and said that the number of transactions have fallen in the upper-end market, but prices are flat. There are fewer transactions, but prices are not necessarily falling like they did in 2008 or the earlier 1990s.

Supply is tight, jobs are strong and there are buyers in the market willing to step in and buy on value. This will support prices.

So where do we go in 2023?

My base case has now changed from interest rates falling to interest rates remaining at current levels for a little longer. The jobs market is just too strong and even if higher rates makes life harder, I just can’t see how unemployment starts to rise quickly from these levels.

This is a good thing, not bad news. Jobs are the oxygen of every healthy economy.

Rate rises will bite, but the economy is super strong at current levels and can absorb. Wages are going to start rising perhaps quicker than expected early in 2023. People need increases to keep up and they’ll get it in strong employment markets such as Australia, US and to some extent the UK.

As a real estate investor, the game is all about income growth. You need to be thinking about income growth over the next 5 to 10 years. Small is beautiful, particularly in well located markets.

We need to start being used to 4-5% interest rates and properties generating 5-6% yields again. That will come from strong rental growth over the next few years. Rising rates will ultimately slow things down, it’s just not going to happen overnight.

Residential real estate is an excellent hedge in a rising inflation environment because rents tend to rise when jobs are strong.

One last thing to note, especially for Australian investors. Australia has an extremely generous tax system through negative gearing, which means investment losses from rising rates are subsidised by the government. This is important to keep in mind when comparing the Australian housing market to other economies. Connect with the Wealthi team to see what we’re investing in.

Go Australia!