Like many people I’ve seen the latest headlines of house prices rising again. Of course it is fact but clearly not based on all the facts which is quite different hence the decision to lower the national base interest rate. So I decided to post my views on what is actually real.

Household debt is amazingly high and not sustainable. This is real debt that effects the economy. The more debt in the house the less economic activity or people buying things. The only real way of getting people to buy things is to pay them more or make things cost less. A pay rise won’t happen quickly so lower prices are really the only way of getting people to stimulate the economy.  However lower prices also mean less profits and less economic activity and lower wages. It does stagnate the economy and a bit of a cycle that is hard to break out of. For example Japan.

Based my own house hunting experience prices of house aren’t really going up they are just advertised at a higher price so when sold the buyers think they are getting a ‘perceived’ discount. Added to that are the owners of houses that where unwilling sell during the price drop phase hence pent up demand for good housing coming on line now.

The lower home loan interest rates are just a cover up and they are still amazingly high compared to the base national interest rate. It’s to tempt you into buying a house as the industry supports a lot of people but it is only restricted to new houses. The economy doesn’t gain much when you buy an existing house. Besides if you can only afford to buy a house at the current interest rate, if the rate goes up you’ll be in financial trouble.

Conclusion, don’t buy an exisiting house unless you really need to, wait for the prices to drop further. Buy a new one house instead and save the economy. Existing house prices won’t rise any time soon as people are getting smart and reading websites like this. I will probably examine the ‘better’ neighbourhood syndrome, that influences people to buy existing homes in certain areas and pay too much: at a later date. I’m working on a another simplified story related to buying an foreign buyers, investment property and negative gearing aka the ‘investment property’ halo.

*This series of articles should not be treated as financial advice. They are observations and opinions.

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