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Why Australian Property Won’t Collapse
There has been a lot of hot air wasted on the subject of Australia’s so called looming Property Bubble over the last couple of years – in fact the Australian housing bubble has been mentioned 3093 times by the media in the last 12 months according to the Commonwealth Bank’s chief economist Michael Blythe, who says talk of a housing bubble is overblown.
My sentiments exactly. In a desperate bid to attract reader interest in a media world clogged with noise, sensationalist headlines revolving around fear or greed now seem to be the norm. So much so, that this regular stream of bubble babble has drowned the opinions of everyday Aussies.
The latest CoreLogic and TEG Rewards Housing Market Sentiment Survey shows two thirds of Australians now think the housing market is vulnerable to a substantial downturn in dwelling value – this is where it gets dangerous as the perception of the herd can drive reality as is evident in the share market. Some local realism is much needed to balance the debate.
Unfortunately media opinion on the so called bubble is driven by overseas ‘experts’ who just don’t understand the peculiarities of our property market and Australians love for the security of bricks and mortar.
“Australia is a unique housing market and sometimes offshore investors don’t realise the key differences,” said a Sydney director at JPMorgan, Sujit Dey, according to a Bloomberg report quoted by Adam Creighton in The Australian recently.
And despite unsustainable localised rises in property values in Sydney, property affordability across the rest of the country is resilient. The Australian article goes on to say that ‘… as the RBA has long argued, household debt is held by high-income Australians who can afford to bear it. Families in the top 40 per cent of the wealth distribution have almost 80 per cent of owner-occupier and investor housing debt. Last year economists at the RBA modelled the impact of a 25 per cent fall in house prices and shares and a 6 percentage point jump in the unemployment rate. They found a “high level of household financial resilience and limited expected loan losses for lenders”.’
There is no doubt that there will be a correction in property values for certain classes of dwellings in Sydney and Melbourne in the short to medium term. The pendulum has swung too far after a catch up in these markets and a correction back towards equilibrium is to be expected given the unsustainable levels of growth in recent times. But this is far from a bubble bursting – it is more like a hot air balloon letting off a little gas.