The media tell us that the ANZ Bank has increased its interest rates forecast and is predicting that the Reserve Bank will lift rates twice before the end of the year.

Westpac say rates will stay on hold this year, while the Commonwealth Bank is tipping one 0.25 of a per cent rise.

TD Securities global chief strategist Stephen Koukoulas has forecast the Australian economy has now started to slow enough to prompt interest rate reductions over the next year. The investment bank has predicted 125 to 175 basis points; between five and seven rate cuts may be lopped from the official cash rate of 7.25% by the end of next year!

Somewhat supporting that view, the National Australia Bank’s chief economist, Alan Oster, said there was a 30% chance the Reserve Bank would begin cutting rates this year as economic growth deteriorated. An interest rate cut this year is a possibility, but there may not be enough of a slowdown,” he said. “But we think that by the late 2009 they will be down to about 6 per cent.”

With so much “background noise”, do you find yourself confused… and wonder who to listen to?

Possibly that question can be better answered by looking back into history. Let’s consider the past 34 years, highlighting just some of those “dramas” that screamed “NO” to those considering an investment throughout the 70′s, 80′s, 90′s and 00′s:

• 1974 World Oil Reserves “Running Out”; Prices through the Roof
• 1979 Oil Shortage Produces Petrol Rationing & Spiraling Prices
• 1982 Discovery of AIDS
• 1983 Tax Deductions on Property Depreciation Abolished
• 1985 Capital Gains Tax Introduced
• 1985 Average Home Loan Rates Hit a Whopping 13%
• 1987 Stock Market Collapse
• 1988 Pilot Strike – Hawke sacked them
• 1989 Interest Rates Hit 17%
• 1991 1st Gulf War
• 1991 Australia Enters Two Year Recession
• 1992 Interest Rates Fall To 7%
• 1998 Asian economic melt down
• 2000 Introduction of GST then 5 Interest Rate Rises
• 2002 SARS health epidemic
• 2001 New Era of War & Terrorism
• 2002 2nd Gulf War
• 2002 Bali Bombing
• 2004 Tsunami
• 2008 Subprime credit crisis
• 2008 12 Interest Rate Rises in a row since 2002

Despite interest rate highs & lows, times when inflation is high or low, unemployment high or labour shortages… In times of uncertainty & fear… residential real estate (unlike any other type of investment) has insulated itself against any and all external conditions that at the time seemed a threat!

Why is it that, against all odds, residential property has been able to consistently insulate itself against such ‘adversely climatic times’?

I believe it’s because, regardless of whatever else may be happening , everybody needs a place to live! They may buy or they may rent… but as with food/water and shelter; we all have to have a roof over our head.

With the many challenges listed above, how has residential property performed over the past 37 years? Using Brisbane as an example:

• Brisbane Median House Price 1970: $8,500
• Brisbane Median House Price 1980: $34,500
• Brisbane Median House Price 2005: $350,000
• Brisbane Median House Price 2007: $448,500
  Source REIA

That’s an average of better than 10% P.A. growth; or less than 7 years to double… for 37 years!

Remembering these figures are based on median prices; i.e. those carefully selected properties (close to shops, schools, hospitals and infrastructure) AND those poorly selected/located, “bad” properties. Careful research should allow us to discriminately invest in the better, higher yielding properties.

What the papers say and the analysts predict is in my opinion just noise… static that makes it hard to hear the real story. Don’t let confusion rule in your world… or you will lose every time! Focus on the big picture – your goals, where you want to “arrive in 5, 7 or 10 years”.