We totally understand that it is a disappointing time for many as they watch their asset values decline and their cost of living rise, this blog seemed very necessary.

Whilst many may want to deny it, the majority (if not all) of us know the following to be true:

  • A global pandemic occurred and despite economies closing down many people and businesses did not suffer greatly largely because of the stimulus money from government numbing the immediate pain. I do recognise that some people and industries did suffer.
  • Effects on the economy often take time and hit with a delay, the effect that comes later is logical i.e.

Rising Prices/inflation slowing the overheated economy and causing hardship:

  • The government stimulates the economy handing out money, people spend it and this contributes to rising inflation.
  • People can’t travel and hence to ease the boredom they spend more at home, again contributing to inflation.
  • More money in people’s hands also leads to people investing more, investor’s often speculate the market to highs and this leads to overpriced markets that eventually correct.
  • As the bull market continues more money in people’s hands leads to speculative investments like crypto and this trend leads to more scams and fraudsters.
  • Low interest rates lead to greater investment and spending also contributing to inflation.

Asset prices falling:

  • The lowest interest rates ever were always going to rise, and as they do then asset prices and investment values will fall.
  • Bull markets will eventually bust as the novice investors drive prices too high until they become non-sensical, both property and tech stocks are recent examples of this.
  • When government money stops then businesses must deal with the economy as it really is and this reality adjustment hits hard.

Poor strategy and greed does not end well for many:

  • Too often in strong markets people chase unrealistic goals and returns, very often when a correction hits they have hardship complaints e.g. we see people with huge mortgages and wonder off the back of the lowest interest rates ever how well thought out their plans were. In fact a mortgage broker advised me Banks have been pressure testing mortgage applications by adding 3% this past year to test serviceability, this should mean people are able to handle the pre-empted rises if their applications were based on the correct data.
  • Unrealistic asset growth is not normal or sustainable, crypto and tech stocks are recent examples.
  • Increased scams, poor practices in lending and weird and unusual investments are all signs that the market has grown too much and the vultures have emerged.


A turning point in the market is a call for self-advised people to review their position, for professionally advised people it is a time to understand your plan and position.

What should people do?

  • Invest with a plan, if you have done this then market cycles are expected and realistic returns have been projected.
  • Ensure your asset structure make sense, this can produce returns from efficiency.
  • Review and ensure you have diversification, if you don’t then your risk increases and this is magnified in a declining market.

The comments above lead most people to conclude that it is best to engage with a professional adviser.

So where to from here?

  1. Stick to your plan unless your circumstances have changed e.g.
  • Your time frame to access your money has changed.
  • Your employment or income has changed.
  • Your assets or statement of position has significantly changed.

2. Seek professional advice if you have not already.

The most difficult part to being a professional adviser is managing a clients expectations driven by emotions.

We believe that returns are necessary but we favour more predictable and less volatile returns when planning for the long term.

This can often be at odds with a clients desire to earn more in good times, the sting in the tail for the clients who chase returns is that they often lose more in a correction negating the previous gains and hurting their long term outcome.

Many share our belief that more is to come and below is some interesting information I have read online recently:

The RBA is raising rates and it is impacting the housing market

Following last month’s decision by the RBA to increase the official cash-rate by 50 basis points, investors sold out of banks. “Property market fears wipe $46b off banks shares” was one headline in the Australian Financial Review.

Property prices

RBA’s own research (RDP 2019/01 Saunders and Tulip), suggests the orders of magnitude associated with its current rate rising policy are:

  • a one-percentage point hike in rates, if permanent, or perceived to be permanent, would result in a 30% fall in house prices.
  • if temporary, or assumed to be temporary, the result would be a 10% decline.

Figure 1: Housing prices – effect of 1% hike in cash rate

Source: RBA Research Discussion Paper – RDP 2019-01

For years Australian banks have been able to grow their mortgage books as new home buyers looked to take advantage of record low rates. It now looks as though growth in new mortgages will slow. In addition, a fall in property prices is likely to put pressure on non-performing loans.

A weakening economy

The threat of rising rate and falling property prices is likely to have a negative impact on the Australian economy. You can see below that the Australian economy tends to correlate to the strength of the housing market. The chart shows the changes to dwelling investment and GDP over a year ago (oya).

Figure 2: The housing cycle generally correlates to the economic cycle

Source: ABS

If you have any questions, please do not hesitate to call.

Thank you.
VJC Wealth Management Team

General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement with VJC WM for this purpose. .