Australian property has made a lot of people extraordinarily wealthy. Trillions of dollars of wealth, in fact. And I want to give credit where it is due. If you bought a home in the 1990s, you bought it at four to five times the average Australian income. Today, that same metric sits at 20 to 30 times the average income. That is a staggering run.

But here is the question I keep coming back to: can it continue from here?

The Three Tailwinds That Drove Australia's Property Boom

Property did not boom in a vacuum. There were three very specific tailwinds behind it, and all three are now reversing at the same time.

Interest rates.

Back in the 1970s and 1980s, Australian mortgage rates were above 20%. What followed was four decades of rates falling in essentially one direction. And as rates fell, property prices rose. This is not a coincidence. I do not think of the housing market as a market for houses. I think of it as a debt market for mortgages. Lower rates mean cheaper debt, more borrowing capacity, and more demand pushing prices higher.

The chart below shows US interest rates against US house prices over the same period. The pattern is unmistakable and Australia tells the same story.

Now rates are rising. And here is the problem. At 20 to 30 times the average income, the maths on higher interest rates becomes brutal very quickly. In the 1990s, paying 17% on a property worth four times your income was painful but survivable. Could the average Australian mortgagee survive a 10% rate today on a property worth 25 times their income? The answer is no.

Negative gearing.

For decades, the Australian government effectively subsidised property investors by allowing them to offset losses on investment properties against their taxable income.

It was a powerful incentive that kept institutional and retail money flowing into the asset class. That has now changed. The removal of negative gearing has shaken investor confidence and is already showing up in the data. Auction clearance rates in Sydney, Brisbane and Melbourne are falling. Investor interest is drying up.

Immigration.

Australia imported a significant number of migrants post-COVID, which kept housing demand elevated and gave property bulls another reason to stay in the trade. But the political mood has shifted dramatically.

One Nation, a party previously considered a fringe player, has now led the polls and overtaken both the Liberal and Labor parties. Their core platform includes slowing immigration. If that happens, one of the last remaining demand drivers for Australian property disappears.

All three tailwinds. Gone, or going.

Why the Trend Follower's Case Is Weakening

There are broadly two philosophies in investing. Trend following and contrarian value investing.

A trend follower looks at Australian property and sees 40 to 50 years of price appreciation and says: the trend is my friend. They expect the price-to-income multiple to keep expanding, just as it has in the past.

I understand that instinct. But trend following works until the trend ends. And when you look at where we are right now, falling interest rate tailwind gone, negative gearing gone, immigration headwinds growing, and valuations at generational highs, the honest question is: what is left to push the trend higher?

If you are considering buying investment property today, you are joining the party at last drinks. The conditions that made the trade great are being dismantled before our eyes.

The Contrarian Case: Rotating Into Precious Metals

A contrarian does the opposite. They look for the asset that has underperformed, the one the crowd has ignored, and they position there before the cycle turns.

Here is what that looks like in practice. Look at the property-to-gold ratio below.

In 2015, it took roughly 575 ounces of gold to buy the average Australian property. Today that ratio sits at approximately 265 ounces. Read that again. Property has halved in gold terms over the past decade. Not in dollar terms, where it still looks strong, but in real purchasing-power terms, priced against a hard asset.

Since 2015, you have made roughly twice as much money holding gold as you would have holding Australian property. Silver has done even better.

Three years ago when I started Liberty Bullion, silver was under $30 USD per ounce. Australian property has risen less than 20% in that same period. Silver has more than doubled. Clients who sold investment properties and rotated into precious metals have not missed out on a 15% property gain. They have gained more than 100% in the asset they moved into instead.

Where I Am Putting My Money

I am an Australian with capital who does not own investment property. That is not a mistake. It is a deliberate decision based on opportunity cost.

Property bulls will point out, correctly, that they are not making any more land. In the same way you cannot print an ounce of gold out of thin air, central banks cannot conjure up an acre of real estate. And yes, with fiat currency being printed indefinitely, property prices will probably be higher in dollar terms eventually. I am not disputing that.

What I am saying is that at 20 to 30 times the average income, after 40 to 50 years of every possible tailwind, this is not where I want my capital sitting for the next five to ten years.

I expect silver to reach $300 USD per ounce within the next three years. Is Australian investment property going to do that? Not a chance. We are in a long-term precious metals bull run that a number of serious market analysts expect to continue well past 2032.

The cycle that drove stocks and property to historic overvaluation is turning. And when cycles turn, the assets that underperformed in the old cycle tend to massively outperform in the new one.

That is the trade I am in. And at some point in the future, when precious metals are extended and property has corrected to reasonable valuations, it will be time to rotate back. That is how wealth compounds across cycles.

But we are not there yet. Right now, precious metals are still early.

If you'd like to learn more about this economic cycle, of how asset prices are inflated in cycles, this is called the Cantillon effect in economics. You can learn more in our article which dives deep into it here.

What a time to be alive.

Sam from Liberty Bullion