By Ed Chan | www.chan-naylor.com.au | Submitted 23rd April 2009 Some say that the impending rise in unemployment to an anticipated rate of 8 percent will drive property prices downwards. They argue that people cannot buy houses if they do not have jobs no matter what the interest rates are. So should we take a wait and see attitude in case this happens. What people forget is that if the unemployment rate reaches 8 percent, the other 92 percent of the population are still employed and they have had their interest rates reduced by nearly half since the peaks of 10 percent last year. With reduction in petrol prices that means 92 percent of people have much more disposible income and are in a much stronger position to either save or invest. Currently we are seeing a flight to cash and Australia is recording the highest rates of savings this country has seen for decades. Does the 8 percent unemployed provide the momentum behind the property market or does the 92 percent employed drive the property market? We believe that whether the unemployment rate is 2 percent or 8 percent they have never driven the property market. We believe that the 92 percent employed has always been the ones to have driven the property market forward. When this will happen no one really knows however the shortage of properties have put tremendous pressure on rents and as the rental yields reaches around 6 percent and interest rates stay around 5.25 percent or lower and a net population increase of some 350,000 pa and a continued build up of property demand over property supply of some 203,000 over the next 10 years, we have the perfect conditions for a property recovery. If the market continues on a "wait and see" basis due to the uncertainty of the overseas markets and the stock market we may still see a further drop in prices in the short term, however once market confidence returns and the yields reach 6 percent (which is achieved through either rental increases and or reduction in prices) we will see a return of investors back into the property market.
