Bronte said:
There was an article in the Financial Review last weekend which talked about how rents are climbing now (Australia wide) due to the fall in supply of rental properties...vacancy rates are falling also. So if this rise in interest rates leads people away from investing, then surely this will directly impact upon the availability of rental properties. Flow on will be increased rents. Then maybe a year or so down the track, the lower property prices together with better yields will bring the investors back into the market. (Or at least those investors scared off by the rate rises!) Then we will have the beginning of the next cycle I guess.
This reminds me of what I now call the "queue" analogy. There's a long queue, where people are serviced from the front of the queue, and people join the rear of the queue. In this case, everyone in the queue is a property investor. Suddenly, where there were 5 attendants serving people, 4 of them leave for their lunch break, (i.e. interest rates go up, property prices go down, yields decrease). So, as more people start joining the rear of the queue, and less people are being served in some time-frame, and the queue becomes longer.
The "unsophisticated" investors get tired, and leave the queue. That is, their investments aren't performing so well — the grass is greener elsewhere for them. Suddenly, the "sophisticated" investors are all left behind, in a queue that has diminished in size, (meaning they will be serviced sooner, and the fruits of their efforts — waiting — will soon become reality), and they get served sooner. After a while the attendants come back and the line starts moving again — that is, property prices start rising, interest rates go down, vacancy rates decrease.
Then, more "unsophisticated" investors notice the queue is moving really quick, and jump on the end, and the cycle repeats...
OK I'm done...
