inflation and property

  1. 1,368 Posts.
    Inflation is the number one driver in the property market, so your view of where property prices are going should be linked to your view of inflation. Yes, RE is cyclical, and all booms must bust eventually.But when?

    RE is driven by supply and demand just like any other commodity.Thats why we get differrent opinions for different regions. Sydney MAY be overcooked and Melb MAY have had a glut of inner city appartents, let me declare that Im not qualified to coment on those areas, my expertise is in Qld.

    But we can draw some generalistaions from economic history.Towns fully developed to the borders of thier town plan have no more room left to cut up new subdivisions, and hence have limited supply of land. Towns with job growth from spending by large companies have a steady demand for new housing.

    Above all this, the public gets spending happy when they have wage growth and job security. People upgrade and feel confident to take out new mortgages. The flow on effect takes care of all price ranges. We get this wage growth, AFTER we have had inflatrion, and the workers/unions have pushed for wage rises. Because of inflation, and threatened company profits, the workers finally get their rewards, and up goes RE.

    Now I dont know what you think is happeneing to inflation. Theres been deflation and low interest rates, and good arguements for that to continue. However, Im seeing inflation already in the people I talk to everyday.

    Food prices are up dramatically from the drought. Did you know farmers are receiving less paymant at the markets for fruit and veg, meat, etc while supermarkets push prices even higher. I paid $4 for a lettuce a few weeks ago, and woolies blame the drought. Petrol is up and they blame the war. Did you see the recent article (might have been on John Laws) where they showed the barrel price of oil was $38 during the gulf war 10 years ago, but petrol was 66c/litre. You dont have to be Einstien to work out somebody's having a lend of us.

    As soon as we see housing cost of living rising in the cpi, it will be all over and we will be facing rising inflation.They are already fudging the figures to hide this.

    I say its already happening. Inflation is just around the corner and it bodes badly for shares long term, and positive for properties where the fundamentals (limited supply, posative job growth) are sound.

    If you disagree, try and explain why the cost of a loaf of bread will get any cheaper.
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