More Support for Property Prices as This Demographic Comes in from the Cold

The perception was that the housing market might cool off after a regulatory clampdown on investors last year.

But that hasn’t happened. The latest data from the Australian Securities and Investments Commission (ASIC) revealed investors are returning strongly to the market, despite the crackdown.

House prices have remained strong and have continued to rise in the latest quarter.

We receive a constant stream of reasons from analysts as to why the housing market will collapse.

Very few, if any, will come out and tell you why property can go higher.

I’m finding lots of reasons why property can go higher, and here’s one more.

Banks are now relaxing the lending rules, to make it easier for a demographic of more than two million Australians to purchase property.

Last month, Westpac announced changes to the way it treats small- and medium-sized enterprise (SME) owners.

Lending capacity for these self-employed borrowers used to be at 80% of the premise’s value. That’s now been relaxed — to 90% of the value.

Previously, self-employed borrowers also had to produce two years of financial records and tax returns for income verification. That requirement has been relaxed to one year. Furthermore, borrowers are no longer required to present their tax returns.

Westpac is only falling in line with what Commonwealth Bank has already done this year. We are now seeing the major banks relaxing the property rules for this sector of the market.

In the past, banks have viewed SMEs as risky. As a result, they received little support from the banks.

But more lenient lending rules from the banks will make it easier for this large demographic to buy either a residential property or a business premise.

More than two million borrowers will find it easier than ever before to buy property. Don’t underestimate the impact this will have on property prices.

Going forward, this development will continue to boost property prices, despite all the doomsayers calling for a property collapse.

But these moves by the banks — to relax lending policies and expand bank credit — should not catch you completely by surprise.

It certainly hasn’t caught us by surprise at Cycles, Trends and Forecasts. In fact, our 18-year real estate clock is telling us to expect an expansion in bank credit and more lenient lending standards.

They say it can’t be done, but — if you understand the underlying force driving the economy — you can broadly forecast what’s coming next.

Most analysts mistakenly believe the economy is based on the movement of central banks or the stock market, or movements in inflation, or some other similar mechanism.

It isn’t.

It’s based on the real estate market.

The Real Estate Cycle

Whatever happens in the real estate market underlies the movement in the economy.

And the real estate cycle moves in a very clear, set sequence and timeframe. A man called Homer Hoyt identified the repetition of this cycle in a book he wrote back in 1933.

The cycle has been with us for almost 300 years, and it repeats regardless of government policies and the type of government in power.

The financial reforms initiated after the global financial crisis have only guaranteed yet another real estate cycle, as that crisis was not financial in nature.

And whilst the underlying cause of the cycle is ignored, the real estate cycle must repeat.

Hoyt’s research has been distilled into our 18-year real estate clock, which you can find at Cycles, Trends and Forecasts. The clock gives you the basic framework of the economy. Once you have it, you will know what’s coming next for the economy.

The movements of the economy might seem completely random. However, a study of history — with a focus on land values — proves the economy moves in a very clear, set sequence of roughly 18- to 20-year cycles of boom-busts.

Subscribers to Cycles, Trends and Forecasts are starting to see how the economy turns and how it can be forecasted.

It’s such a relief to actually be able to see what’s coming next for the economy, and ignore all the misinformation of the financial press.

Get a copy of our real estate clock because the economy will unfold exactly as it details.

The 18-year real estate cycle is alive and well. The current cycle is no exception; it is unfolding exactly to script.

To know what is coming next in the economy is an incredible investment advantage.

You can find out more about this unfair advantage here.

All the best,

Terence Duffy,
Lead Researcher, Cycles, Trends and Forecasts

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia