Last week I told you HERE, how, in the 1973 Oil Shock, oil prices went from $4 to $12 in 18 months and what effect that had on inflation, mortgage rates and how Sydney and Melbourne house prices went up significantly.

So lets now look at the second oil shock in 1978:

In 1978 Oil prices went from $14 to $25 the following year. By 1980 they had gone to $37. They then slowly fell to $25 over the next 5 years.

So from 1970 to 1985 oil moved from $3 to $27, hitting $37 along the way, By 1995 oil was still sitting at $18. 

Mortgage rates climbed from around 10% in 1978 to 17.5% in 1990, rising steadily the entire 12 years (!), along with sustained high single digit inflation, before finally peaking.

Sydney property price growth ranged from -5.6% to 26% in this period and everything in between, with rising mortgage rates not stopping high growth rates at times.

See the attached spreadsheet if you want to check it all out.

SPREADSHEET NERDS CLICK BELOW (Fun fact I studied Mechanical Engineering in ancient times, I am a certified data nerd, shout out to my uni mates you BETTER BE READING THIS).

Thus the effect of this 2nd oil shock in the 1970s, the corresponding inflation had a more complex effect on house prices compared to the first one. But certainly not dramatically negative. 

Over the entire period from 1970 to 1995, a time of significant increase in oil prices and inflation, there were only 2 years where Sydney house prices fell (and guess what, these were some of the lowest years of inflation the entire time).

In summary, whilst the data is much more nuanced and there are many more factors, the history of oil price shocks has taught us that house prices have historically risen 95% of the time in these high inflation environments (with a few negative years) in times of inflation, in both nominal and real terms.  Perhaps it’s a case of money looking for the least worst place to go and a flight to safety. Then prices hitting affordability limits of what percentage your mortgage costs of your income.

So if you are wondering whether you should just stop looking to buy a home because you are worried about the current economic environment, don’t be, keep going and find that home, the data supports you. 

In fact, this data argues that you should actually be bringing forward your home buying plans in this time of great uncertainty (and I would advise locking in some of your debt at fixed rates).

Do you have a plan how to come out financially better on the other side of this crisis? Lets build you a strategy now.

Lastly, nothing in this newsletter has been written by ChatGPT, it takes me a while but its all my own analysis.