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‘Interest rates are the primary driver of the housing market’

The housing market is pegged to interest rates rather than to a calendar cycle, The Property Nerds have revealed, noting that while unit prices follow a more cyclical process, houses do not.

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“All roads lead to interest rates, which ultimately then is the primary driver of the housing market,” one-half of The Property Nerds’ duo, Kent Lardner, told Smart Property Investment.

Mr Lardner’s business partner, Arjun Paliwal, agreed.

To prove his theory, Mr Paliwal recently reviewed property growth trends over the last 25 years, calling into question the prevalent belief that property booms every eight to 10 years.

“Typical booms – and I say typical, not every single one, because I’ll call out a few examples – but 2.5 to 4.5 years was the most common period of length when markets are in a real upwards shift.

“Now, if you’re talking 10 years, that doesn’t look like, to me, this perfect circle clock of cycle within a 10-year period, and it doesn’t happen every 10 years. That’s the interesting part,” Mr Paliwal said.

Instead, Mr Paliwal revealed, a boom can be detected in the space of every 12 to 15 years.

“The 10-year part is really a big myth. It’s not happening every 8 to 10 years like we often suggest, and it’s definitely not happening at every 5 to 7 per cent per annum, wack that into a compound calculator and you should be rich by 30, 40, 50. It doesn’t look like that,” Mr Paliwal explained.

As such, Mr Lardner is confident interest rates dictate growth.

The other key decider is immigration.

“Now we’re seeing locally a lot of exodus from the cities into the regions, which is having a phenomenal impact on some of these smaller regions. I think a lot of the suburbs out in Melbourne had benefited from people coming in from overseas for the last few years.

“They’re the big indicators for me. There are other things that we try and peg to the housing market. There’s been a lot of good research papers out of the universities. But by and large I find it very, very hard to pull out any individual data element that predicts the market or has a really strong correlation, other than interest rates,” Mr Kent reiterated.

For more market insight, tune in to The Property Nerds podcast.

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