Australian Property News

Why the Australian property market is still strong

Posted on Tuesday, March 29 2011 at 12:59 PM

Since the global financial crisis, housing prices in both Europe and the USA have seen a sharp decline. However, Michael Matusik of Matusik Property Insights says Australian property investors shouldn't be too concerned, because prices in Australia have actually increased and continue to do so.

According to Global Property Guide's latest survey, house prices around the world have fallen by about two per cent in real terms, after allowing for inflation. On the other hand, Australian house prices increased in real terms by 11.6 per cent in 2009 and 3.1 per cent last year.

"Being out of step with other housing markets across the world is causing some to be quite nervous," Matusik says.

"The property bears believe it’s only a matter of time before house values plummet here."

For this reason, Matusik has listed seven reasons why Australian property prices will continue to outperform others around the world. 

1. Population growth – Australia maintains a strong population growth. The domestic population is aging, but the migrant intake is largely in the 20s to 30s cohort, which means increasing household formation and greater demand for dwellings.
2. Tight lending practices – Interest rates still have room to fall. Australia has full recourse loans, giving lenders the right to take assets off the borrowers if the repayment isn’t made.
3. High equity – Current loan-to-value rations are around 53 per cent, reflecting our current conservative position towards debt. Australia’s housing debt to housing assets is 29 per cent and our debt to overall assets is just 19 per cent. This means as a nation, we own around 70 per cent of our homes. Australians are also saving more, around 10 per cent of our incomes. The improved state of our personal finances further reduces the risk of house prices collapsing.
4. Undersupply – Not for every dwelling type, but the bottom third of the market. There is an undersupply of basic, affordable housing across our capital cities and in major regional centres too.
5. Economy growth – Nearly all of us can find work. Housing markets usually crash with large falls in employment.
6. Low unemployment – As long as our unemployment rate stays below eight per cent, wholesale falls are unlikely. It's currently 5.1 per cent.
7. Few mortgage defaults – Just 1.37 per cent of home loans across Australia are 30 days in arrears, and just 0.54 per cent behind mortgage repayments.

Matusik says it pays to have a long-term view in property investing.

"There is little doubt that values are now falling," he says.

"How far they will continue to fall is unknown, but I don’t think it will be anywhere near as far as most property bears believe."