We’ve just had an economic experiment of epic proportions and there’s really only one conclusion: on house prices, Cameron Murray is as correct as anybody can be about a contested economic issue.
Cameron Murray is an all-round interesting thinker whose views at least on some topics you almost definitely will have some provocative issues with. One such claim, which he’s made in a variety of places, is that by far the biggest factor on house prices is interest rates. Of course, you have to discount massive government policy change or an economic depression producing widespread unemployment. But barring that, it’s interest rates all the way.
In this COVID period, we’ve had:
- a massive narrative change (the story told ad nauseam during 2020 was that house prices would crash)
- a massive government-backed building boom increasing supply
- a massive drop in immigration, as well as depopulation in certain areas, reducing demand
- a large drop in rents
- great economic uncertainty with a concomitant rise in unemployment during 2020
And yet, the drop in interest rates swamped all those factors above to push house prices to further highs. Even credit flow dropped without much of an impact on the massive upswing in house prices.
Granted, people can argue with Murray’s position on the margin, but I put it to you that one of the silver linings of this whole COVID debacle is that we can put to rest one of the great Australian economic debates and definitively conclude: house prices are all about interest rates.