Supply and demand is true, however interest rates surely play a part in supply and demand as would any other cost factors. I would also say that interest rates play a significant role in affordability or debt serviceability for many people, but again are linked to demand. Lower rates could mean increased demand which in turn may put upward pressure on property prices.

I accept that if interest rates were 0% then it would be purely demand for limited housing. But if you made interest rates 30% many people would not be able to service the loan repayments at given property values, relative to their disposable incomes.

This would put downward pressure on demand for purchasing houses as opposed to renting. This downward pressure would then translate to slower property price growth or even negative price growth, depending on the degree of pressure and other pertaining cost and income factors in the market.

Without knowing the specifics, 12% interest rates may not have been sufficient to dampen demand sufficiently enough at that time, for house prices to stop rising. But eventually if either house prices or interest rates reach a certain point, demand would slow. This is because as the cost of debt servicability rises, there would be fewer and fewer prople with disposable incomes sufficient to meet the loan repayments.

The reality is that debt serviceability is a function of several variables. Mainly being 1. House Pricing, 2. Disposable Income, 3. Interest Rates

A $100K home at 10% interest will cost as much to service the debt as a $200K home at 5% interest i.e. It would cost me $191.79 in interest per week, assuming interest only IP.

So clearly the debt serviceability would remain the same on both investments. This is assuming that debt serviceability is the major impediment to buying property, rather than price alone. I would assume this to be the case as you could always afford the repayments even if it took a lifetime to pay off.

Even I could afford a 1 million dollar property if interest rates were 1% It would cost me $191.79 in interest per week, which happens to be the same cost in interest as the other two examples I gave above. This would mean that many people like me on slightly above average incomes could afford to buy 1 million dollar IP homes.

The problem is that this would then increase demand for these types of homes and hence prices, until affordability at even 1% rates become a problem for people like me. So clearly interest rates and incomes play an important part in demand for housing at certain prices.

Also interest rates play a factor in serviceability of debt and hence affordability relative to disposable incomes and hence demand.

In fact supply and demand for loans at certain rates will effect supply and demand for houses at certain prices, as most people require loans to buy houses.

Affordability and hence demand, is a function of debt, interest rates and available disposable income.

There may be many short term micro effects to changes in market conditions, but ultimately when all changes are complete and the dust settles, the market would move toward some form of equilibrium, where in consideration of all relevant variables, supply meets demand.

In answer to the question, I think any of the pertaining variables, but particularly the big 3 identified being prices, income and rates could create a downturn. Remember that there is usually a lag time between action and market reaction.

So if for example, any of the variables changed by say 25% or more, one may eventually see the market reaction to such change. But there is no magic number, as there are so many variables that can effect demand and to some extent supply.

The other thing is speculation about what is likely to happen. Once people start to panic this it self can cause a correction if they try to offload property that they can no longer afford to hold due to higher rates against rents. On the other hand buyers may also become reluctant to buy at current prices and rates.

This may result in supply at a given price exceeding demand for property at that price, in terms of property cost, rates and available income. This could cause sellers to get nervous and dump property at lower prices which may eventually bridge the supply demand gap and then stabalise demand and supply at lower prices for a while.

Many factors to consider clearly.

I wouldn’t touch them with a barge pole.

good luck.

Hmm, you say you have $250,000 Am I mistaken ? Well lucky you either way !, go buy yourself a brand new investment property. Go passed GO and collect positive or neutral cashflow.

Forget about buying some old dump and doing it up. Also again if you must buy with your father, buy brand new and forget all about rennos. It’s much simpler, nothing to do no rennos. If you have $250K you can structure it cash positive or cash neutral at your choice. Plus you get good capital growth.

Or did you mean you can borrow up to $250,000 ? in which case buying the older property makes more sense, but still I prefer new for less hassle. I’m not sure what you meant.

just one thing, when ever you find your dream IP, get it independantly valued by a professional.

Go to it now kid ! [8D]

Hmm, if you intend selling it, then why dont you just get your family member to sell it and give you the profit ? hehe. seems much simpler.

I think all these areas offer good growth in the long term. I can only suggest diversify your investment localities. buy some closer to CBD and some farther away. That’s what I’m going to do.

Responsible Investing ? I guess its a bit like responsible driving ? know your road rules ( dos and don’ts ) know your vehicle ( what will fund your journey ) know your destination ( end goal ) and know how you intend getting there ( your road map or plan ) ? Know the road conditions ( wet & slippery and bumpy ? dry and hard and smooth ? )

Finally know your driving limitations ( some of us are better or safer drivers than others ) Also know the limitations of your vehicle ( try not to recklessly drive it like an F1 racing car down city streets ) Manage your risks in the context of these limitations.

Watch out for the pot holes, road work signs and strewn debris along the way. Try not to become a casualty and then a statistic.

Drive Safely and with Caution !

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Yes I agree if you can find a good one with a good reputation then its worth consdering, if you feel you still prefer guidance. Sounds like a great idea, but I would want to be certain the advocate is not getting a two way deal here with the vendor and you. But as suggested, I’m sure there are some good ones around.

Though I still suggest an independant professional valuation on your first investment by a qualified and recognised valuer, when you are about to make the final choice, just as a saftey net. This could be viewd as part of due dilligence. You want the first one to be the right one.

Once you become more savvy with the market and build trust relationships with vendors, you may prefer to bypass this step.