Ask Paul: When will property prices stop going up?


Dear Paul,

I am 26 and my fiance is 27. We have combined savings of $110,000 in cash and $20,000 invested in the ASX. We have $50,000 each in our super accounts.

We both have salaried positions in Canberra and take home around $2200 each a fortnight. We are renting at $850 a fortnight and have no debts.

paul clitheroe when will property prices stop going up

We would really like to buy a house and have been actively looking for the past year. However, Canberra is an expensive city and prices continue to climb. The pandemic has resulted in less supply and even more demand. We have found that houses in suburbs where we want to live are increasingly out of reach. 

It also feels as if the market is over-inflated and houses are selling for well above the advertised price - and don't even get me started on what it's like at auctions! At first we thought we were being too fussy, but we've found that it's a problem across the city. 

And no, the bank of mum and dad isn't an option for us! (Neither is buying an apartment - there are too many horror stories about those in the ACT).

Are we just kidding ourselves by thinking this trend has to stop at some point? Where does that leave us? Is there another option we're missing?

I'd be grateful for your advice. - Abbey

Well, Abbey, I'll have to drag out my rather flawed and cloudy crystal ball. We have three adult kids ranging from 26 to 33 and we really do get the whole issue over housing affordability, agents' "price estimates" and the pressure-cooker environment called an auction.

I really wish my crystal ball had the ability to guide you, my own kids and all other potential home buyers with more confidence about the future!

Anyway, take a deep breath and let's have a crack at this. About the most reliable fact is that Australia's population will continue to grow.

Our bigger cities and stronger regional cities will grow quite rapidly. Building costs will rise, as will the price of land development, so it is not radical to say property will be more expensive in a decade.

The nearly zero cost of money is the biggest driver of property values today. This will remain for some time. But with the amount of money our system is creating to help us through COVID-19, sooner or later rates will rise. This should cause a mortgage crisis of major proportions. So, as always, we will see periods of falling property values. The problem is I do not know when.

You have great savings and secure jobs, so I think a compromise is your answer. Personally, I'd get into the market if you can. It may mean a smaller property in an area you like, or in a well-located suburb, but not one that is your first choice.

Being a dinosaur and looking back may not be helpful for you. Our first home, way back in about 1982, was a tiny two-bedroom semi on a busy road facing an industrial estate. But it was our home, we loved it and it got us on the property ladder.

I do wish you all the best with what is one of the biggest issues of our time - housing affordability.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.