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Michael Yardney Podcast

Insightful, educational and always interesting

Listen and learn from Michael Yardney, Australia’s most trusted property commentator and a group of experts as they discuss Property Investment, Success, Money and Finance to help you multiply your wealth.
While Michael is best known as a property expert, he is also Australia’s leading authority in the psychology of success and wealth creation. You’ll enjoy the way he challenges traditional finance advice with innovative ideas on real estate investing, personal finance and wealth creation. 
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Dec 20, 2021

According to Core Logic, over the last 12 months, their home value index has risen by 30% in Sydney, 26% for Brisbane, and almost 20% for Melbourne.

There is no doubt that these levels of property price growth are unsustainable in the long term, so are we in a property bubble?

Are our property markets going to crash? And if so when will this happen?

That’s what I’m going to discuss in today’s podcast with independent financial advisor Stuart Wemyss, as we go back in history to see how much property values have fallen in the past – I think some of the stats that Stuart will share will surprise you.

Are Our Property Markets Going to Crash? If So, When?

The average household in a raft of suburbs around Australia will be pushed into mortgage stress if interest rates climb just 1%.

Well…That was a headline doing the rounds not that long ago.

At much the same time modelling by one of Australia’s most publicized property pessimist suggested that a minimum mortgage rate hike combined with a higher buffer rate as required by the recent APRA edicts to the banks would send thousands of residential landlords into financial stress and could fuel house price falls by the end of next year.

So, will higher inflation lead to higher interest rates that will tip the scales and spell the end of the current property boom?

And more importantly, will it create a property market crash like a number of commentators are predicting?

The problem is that some people know just enough to think they are right and not enough to realize they are wrong

The reality is that property has always seemed relatively expensive.

What is mortgage stress?

There are various definitions of what mortgage stress is, but it’s most commonly defined as a household spending more than 30% of their pre-tax income on their home loan repayments.

Yet looking at mortgage defaults or mortgage arrears with our banks would suggest that very few Australian households are currently suffering mortgage stress, and many are well ahead in the mortgage payments.

Let’s look at what could cause a housing market crash

There is no doubt that at some time in the future we will experience a cyclical property market correction, but there is no need to worry about a house price “collapse” like some property pessimists are suggesting.

House prices “collapse” when people are forced to sell their homes and there is no one willing to buy them.

A true collapse in house prices would require a significant external shock such as:

  1. Unemployment is high enough to trigger a waiver forced home sales, and that’s not going to happen.
  2. Interest rates rise so high that they would cause a raft of homeowners to default on the mortgage. The Reserve Bank wants this about as much as it wants another strain of coronavirus.
  3. A credit squeeze – APRA is currently making it a little bit more difficult to borrow money, but they don’t want to crash our property market either.
  4. A severe recession that would increase unemployment and cause homeowners to default – that’s not on the cards.
  5. A severe oversupply of property – currently we have an undersupply of the right type of properties that most homeowners want.

So, while a crash is not on the cards, a correction will occur one day and at that time some properties will hold the value better than others. Obviously, that’s the type of property you should own.

Australian property price bubble?

According to Core Logic, the home value index has risen by 30% in Sydney over the 12 months to October 2021, 26% for Brisbane, and almost 20% for Melbourne.

Whilst recent property price growth has been unsustainably high, it’s more important to consider medium-term growth, especially considering negative returns in 2017-2019. Over the 5 years to June 2021, the median house price in Brisbane, Sydney, and Melbourne appreciated by between 4.7% p.a. and 6.9% p.a. (according to REIA), which is below the long-term average.

Whilst some commentators have recently predicted that property prices will fall, it is interesting to note that medium-term returns (5 years) tend to be a good predictor of price falls. I picked the largest price falls since 1980 in Melbourne, Sydney, and Brisbane. Here’s what I found:   

  • Median house prices in Sydney fell by almost 15% between 2017 and 2019. The 5 years prior to this period prices rose 13% p.a.
  • In Melbourne, the median house price fell by 11% over 2011/2012. The 2 years prior to this period house prices rose by 24% p.a.
  • Median house prices in Brisbane fell by almost 8% over 1986/1987. The 5 years prior to this period prices rose 11% p.a.

The conclusion is that price growth must be above average for an extended period of time (more than 2 years) for there to be a risk of a correction. Property prices in Melbourne, Sydney, and Brisbane have merely made up for the poor growth rate since 2017.

Today’s property prices will seem cheap in 2031

The best way to reduce your risk of entering a seemingly “expensive” property market is to buy a property that has the highest likelihood of generating the highest possible capital growth rate.

As the above table demonstrates, you can double your return if your property can generate 9% p.a. versus 7% p.a. over 40 years.

A relatively small increase in growth rates can have an unexpectedly large impact over many decades.

Buy the ‘right’ property and play the long game

The best response to any concerns about property prices is to level up on a property’s quality and focus firmly on long-term outcomes.

As a staunch proponent of evidence-based investing, you must apply a rules-based approach to selecting an investment-grade asset.

But also, since the property is part-art, part-science, it’s critical that you get advice from a local area expert.

Links and Resources:

Michael Yardney

Stuart WemyssProsolution Private Clients

Stuart’s Book – Rules of the Lending Game & Investopoly

Get the team at Metropole to help build your personal Strategic Property Plan Click here and have a chat with us

Get a bundle of free eBooks and reports at

Shownotes plus more here: When will the property market crash? With Stuart Wemyss

Some of our favourite quotes from the show:

“One of the problems for beginning investors is if they get it right the first time, they think they’re smarter than they are.” – Michael Yardney

“The only reason the reserve bank would raise interest rates would be to slow down a booming economy. At the moment they’re keeping them low to grease the wheels of industry.” – Michael Yardney

“This change in seasons that we’re experiencing is a welcome reminder that we’re not living in a never ending now.” – Michael Yardney


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