Prices in some suburbs of Sydney are starting to rise. Is now the time to buy an investment property in Sydney or even Melbourne?

Hi it’s Niro here from Investment Rise and let me explain why now is NOT the start of a new long term price boom in Sydney and Melbourne, despite prices rising as I write this.

In fact, just yesterday, there was a major article claiming that now is the start of a new boom. Here’s a link to the full article but I’ve included a screenshot below

So why do I disagree? 

Well, let’s go back through history a little bit to see more.

Cast your mind back to 2015.

At the end of 2015, the Sydney and Melbourne markets were running out of steam. Then the Reserve Bank of Australia gave us 2 interest rate drops in 2016 and what happened?

Both our two biggest markets started to take off again. Many people said this was the start of the new boom and many people jumped in as a result of that.

But I came out in 2016 and said that the Sydney and Melbourne markets were no longer the places to invest in for maximum capital growth going forwards. And what happened?

Well, the last interest rate drop we received was in August 2016 and less than 12 months later, July 2017, the Sydney market hit its peak and then started dropping like a stone. Melbourne followed shortly afterwards. Melbourne hit its peak in about November 2017 and then it started dropping quite significantly all the way until the Reserve Bank of Australia started giving us rate drops again.

And the moment we started seeing these interest rate drops, prices in Sydney and Melbourne, they start to stop falling as much. And now some suburbs are even seeing a bit of an uptick.

So the question is then, is this the start of the next price boom?

And you’ve got to ask yourself this question: What’s driving the price growth?

Has there been an improvement in wages? Has wage growth increased? Has the economy got a lot stronger?

Actually far from it right?

In fact, the reason the Reserve Bank of Australia is giving us these interest rate drops is because the economy is weak. It’s because they want to try and stimulate the economy. They want to stimulate growth. It’s because there’s no growth in wages. So therefore, wage growth is not the reason for prices increasing.

Then you have to ask yourself, has there been this massive increase in demand because the rate of population growth has that increased significantly in both Sydney and Melbourne? No! That’s not it either.

So therefore, what’s driving price rises?

The only thing is the fact that interest rates have dropped. And the question though is, yes that’s great, but is this now the beginning of the next boom in both Sydney and Melbourne?

And if you cast your mind back to history. If you just go back to what happened a few years ago… 2016, August 2016 we had our last rate drop. By July 2017, prices peaked and started to fall back to… and they fell further than even where they were at before that first rate drop in 2016.

I think you’re going to see something similar again.

I think what you’ll see is that the Reserve Bank of Australia will stop cutting rates sometime in about mid 2020. Once they stop cutting rates, unless all of a sudden our economy gets so much stronger, unless there’s a massive increase in wages which I don’t see happening, I think what you’ll start to see is that a few months after that last rate drop that we have in early to mid 2020, the Sydney and Melbourne markets will again hit a bit of a peak and then prices will start to either go sideways or they will start to fall.

How much will they fall? Who knows? But the question is, is this the start of a next boom? I don’t think so. I think what you’ll start to see some suburbs will have a bit of an uptick. Others will just go sideways and do not invest based on your thinking of, “I don’t want to miss out.”

If you invest based on FOMO or the Fear of Missing Out which means you’re making an emotional decision, you may end up finding, just like people who bought in late 2016 early 2017, that they end up in a position that they never wanted to be in. And it could be a position that derails you from achieving your financial goals.

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