The noise and contradiction of daily news cycles about property prices can hold us back on making decisions about buying property it leave us no wiser only more confused about what influences the property market and for many this is so important to achieve their goals of home ownership.
I wanted to share with you what I have learned and how it has allowed me to zoom out of the noise and understand what affects asset prices so my family and I can get ahead. This is not financial advice, I am not an expert only a keen researcher trying to create wealth and hope this blog sparks the reader’s curiosity to learn more.
Macro economics play a crucial role in how our governments create and spend money that ends up sloshing around the private and public sectors to stimulate our economy. How this is communicated gets buried under acronyms and political jargon that we, the general public rarely understand and struggle to connect what it means for us and our wallet.
According to Dr Michael Howell's book 'Capital Wars' what affects our wallets and asset prices the most is Global Liquidity.
“Global Liquidity is the collective term we use to describe the gross flows of credit, savings and international capital feeding through the world’s banking systems and wholesale money markets and used in and between World financial markets to facilitate debt, investment and cross-border capital”
The biggest providers are our central banks, the two main are the US Federal Reserve and China’s PBOC. When they instruct stimulus this is injected into our financial system through our banks.
Happy days! Remember the Covid handouts.
Or, is it happy days?
For those who own scarce assets like property, yes for those who don’t no.
As Global Liquidity rises so do asset prices like property.
The chart courtesy of CrossBorder Capital highlights the correlation between Global Liquidity and Australian Real Estate where the black line shows home prices with a lag of nine months and the orange line is the measurement of Global Liquidity.
The impact of of our government and central bank stimulus has an affect on our property markets here and around the world, more money, more demand.
The US Federal Reserve just lowered rates and China’s central bank PBOC fired a bazooka of money into the system with rate cuts and a $284 billion dollar stimulus to wake markets up.
According to the above chart if Global Liquidity is due to rise from this recent stimulus we could see the tide lift the ship of Australia’s real estate market even higher over the coming year.
The challenge is, even as asset prices rise, wages remain stagnant. As global liquidity keeps increasing, the gap between home prices and wages widens further, pushing property ownership out of reach for many.
So, how can property prices keep rising while wages don’t?
Demand for property remains strong—especially for scarce assets like homes in desirable areas. As long as people can access credit or leverage existing assets, prices will keep climbing. But this disconnect creates a growing affordability crisis, as fewer people can afford to buy property unless there’s a significant change in either wages or lending rules.
The reality is that many buyers will need to turn to more affordable regional locations or hope for relaxed lending rules to make home ownership a reality.
If you own scarce assets like property, you’re likely in a good position. If you don’t, the famous Banksy mural above depicting a balloon slipping away reflects the struggle many face in achieving home ownership. As global liquidity pushes property prices higher, the gap between wages and affordability widens and the dream of owning a home drifts further away, just like the balloon floating beyond the girl's reach.
