What’s the big thing in the way of a property decline?

“The reality is that homes to Australians are very important, we all need somewhere to live, and it is the thing that people will keep payments current on, even if they’re foregoing other parts of their family budget to accommodate them. If interest rates rise, and the economy may slow [down] as a result of rising interest rates,” Mr Baum said to Smart Property Investment.

“For example, when interest rates rise, a greater proportion of household income [is] going into home loan repayments, but really, it’s unemployment that causes defaults because people are no longer able to actually make their payments.

“So, it’s a capacity to pay thing.”

At the moment, Mr Baum said it falls down to supply and demand; there are not enough new houses being built, which is why housing prices are still relatively high.

“Overall, what we’ve historically seen at least is that supply is less than demand over the long run, so they tend to rise and then they tend to plateau, and they tend to rise, and those rising spikes are more prevalent in certain states than others. They very rarely go backwards in real terms.”

Mr Baum said interest rates are another obvious factor, “but I think they contribute more to stagnation in prices, maybe modest dips rather than outright significant falls”.

As opposed to rising unemployment figures and a lack of property supply, the combination of wage growth and tight supply result in rising property prices, Mr Baum said.

“A good example of that is the WA market through the mining boom, where you had both rapid population growth and rapid industry specific wage growth occurring in a market that saw strong demand outstrip supply, and in that scenario, prices rose relatively rapidly.”