This is nothing short of a paradigm shift.
I saw a report from some analysts the other day saying that they expected house prices to double from here.
That sounds pretty wild, given how far land values have come. (And remember, with property we’re talking about two assets bundled into one – the land value and the dwelling value. It’s usually the land value that drives capital gain.)
But that’s what they reckon. On the back of record low interest rates and a massive money printing program, land values could double in the next 5-10 years:
Is this realistic?
I’d say so. Remember, we’re entering a new era here. We’ve never had such shameless, no-holds-barred money printing in Australia before. Right now it’s $5 billion every week. It changes everything.
And I actually think we’re entering a new paradigm. A new regime.
Most economist reckons there’s been three phases (or regimes) in house price growth since 1900. Between 1900 and 1960, house prices were broadly stable. Between 1960 and 2000, house price growth was modest. Between 2000 and now, house price growth was ‘strong’.
Now the real reason for the regime change between 2 and 3, where property price growth really shifted up a gear, as the opening up of the financial sector.
Deregulation began in the 90s, but by the 2000s it was in full effect. It became much easier to get a mortgage, and there were all sorts of new players in the banking sector.
This drove the costs of mortgages down.
Combine that with a structural decline in interest rates as well, and you have the makings of a twenty year boom.
But now I think we’re going into Regime four.
And where Regime 3 was driven by interest rates, Regime 4 will be driven by interest rates AND money printing.
And we’re going to move from a Regime of ‘strong’ price growth to ‘exponential’ price growth.
You can already see the early stages of it in the data.
Global house prices have soared since the pandemic started, as Central Banks the world over fired up the money printers.
It’s actually given us one of the ‘broadest’ house price booms in history. Right now, house prices are increasing in 90% of countries.
In NZ, house prices are growing at 30% year on year. Much of the developed world is on a similar trajectory.
That’s why I say that we’re entering Regime 4 – exponential price growth – driven by massive money printing the world over.
And in that context, could land prices really double