Is Australia facing a Housing Bubble?

The subject of a ‘housing bubble’ seems to be a media favourite at the moment, with consistent coverage ever since US property investor Jeremy Grantham said in June that it was only a matter of time before the Australian residential property market crashed. 

I can understand that for those Australians who own property and/or are considering making a property purchase, such speculation may be quite worrying.  

My colleagues and I at CENTURY 21 have consistently refuted the notion of a housing bubble ever since the topic arose, pointing out the stability of the residential property market in recent years which has been underpinned by steady upwards trends in the growth of house prices for over a decade. 

However, given the continued nature of the speculation, I thought I would recap on the views of the different experts, including the Reserve Bank of Australia, who have weighed in on the debate. 

The most recent commentary was from the chief economist at Goldman Sachs, Tim Toohey, who last week dismissed the concept of a speculative housing bubble.  Mr Toohey was quoted in the Sydney Morning Herald as saying that the behaviour of housing prices over the past year does not resemble a housing bubble due to a number of factors.

These factors include the fact that the refinancing of established homes is at a nine-year low, that loan-to-value ratios are well below the levels seen in 2000 and that the loan-to-value ratio of new dwellings has remained virtually unchanged for over a decade. 

Mr Toohey also referred to Australia’s housing shortage which is reaching chronic proportions and looks only to worsen over the next few years as the demand for residential housing continues to surpass supply – Goldman Sachs has estimated that by the end of 2010 the national housing shortage will be 250,000. 

The Reserve Bank’s viewpoint appears to be in agreement with that of Mr Toohey and Goldman Sachs and CENTURY 21.  In a research report released by its economists, the RBA downplayed concerns of a housing bubble, referring to the fact that the issues which led to the housing bubble of the early 2000’s and subsequently required policy intervention are not present in the market currently. 

The RBA’s research notes how the residential housing market has now improved and is less likely to result in a bubble, mentioning that investors now play a less prominent role, the lending standards of banks have become better and the ratio of housing prices to income has been moderately flat for some time.    

So it would appear that many Australian experts also agree that a housing bubble is not what we are currently experiencing.  Having said this however I would encourage those interested in property to continue reading and to remain abreast of the different opinions that arise on the topic.  Australia continues to have a chronic housing shortage and ongoing increasing demand, which should help to keep the house prices trending upwards for the time being.

Posted by Charles Tarbey on 14/10/2010 at 4:05 PM | Categories: State of the Market -


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