“Doomsday” economists were adamant that Australia’s housing market would collapse under the combined weight of affordability issues and the global financial crisis last year and many still insist there’s a growing housing bubble. But house values rose over 2009 and continue to do so.
By MICHAEL YARDNEY
According to Macquarie Bank economist Rory Robertson, claims of a housing bubble “don’t stand up to serious scrutiny”.
In a recent report in The Australian, Robertson says, “Most observers can see positives, including a growing economy and limited new housing supply despite rapid population growth, and negatives, including higher mortgage rates recently alongside funding stresses and de-leveraging in local and global financial systems.”
With these forces applying pressure on our housing markets, Robertson says average prices might rise or fall slightly over the coming year, but a US-style market collapse is not on the cards.
He dismisses claims from investment legend Jeremy Grantham that suggest an Australian property bubble is forming, with prices allegedly around twice that of what they “should be”. Grantham says prices have to drop to a more “normal” level that reflects the average family income.
Robertson’s response? “Don’t bet on it.”
Robertson says comparing the Australian housing market to its US counterpart (where house prices fell by 30 per cent recently) is like “chalk and cheese”. For one, our unemployment levels are almost half those of the US (five per cent versus close to 10 per cent), and our mortgage markets are managed under strict regulations.
That’s not to say affordability isn’t a concern. Robertson reports that although we have an overall home ownership rate of 70 per cent which has held steady for decades, the home ownership rate for Australian households under the age of 35 years has declined from 50 per cent in the late eighties to 40 per cent today.
However, Robertson says that while young people are finding it harder to break into the property markets in areas they want to live, “…contrary to some claims – not everyone is over-geared… Across all households, mortgage debt amounts to about 30 per cent of total housing assets. Is that over-geared?”
Robertson says with the majority of Australians traditionally opting to live in our most desirable locations – in and around our six coastal capital cities that already house almost two-thirds of our 22.4 million population – it’s unlikely that house prices here will suffer a devastating nosedive any time soon.
Particularly given that we’re currently experiencing record immigration, with almost three times the new arrivals per annum (currently around 300,000) than usual, even though we only tend to build 150,000 or so new homes every year.
“Australian home prices are relatively high in part because, rather than ‘spreading out’ across our continent, most of us choose to compete to live on the same best-located bits of ground near the beach,” says Robertson.
Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. Subscribe to his e-magazine at www.propertyupdate.com.au. For more information about Michael visit www.metropole.com.au.
API readers – do you think Australian property prices are too high and will collapse? Leave your comments below.
Too right Michael.. there was a lot of negative press relayed by journalists that i know of some people that were selling up, selling half etc. In the late 1990s i stopped listening to pundits .. both good and bad as none of them would have predicted for example a block of vacant land in Redbank Plains in Brisbane going from $50,000 to $110,000 by years end (no one could ) so how on earth can some of these nervous nellies suggest there was going to be a “turn on the dime” crash in prices.
I said to a lot of colleagues .. yes, but whats your turnaround cost .. everyones going to have a feed out of you selling and you have to get back into the market, cost of being out of the market etc. Realestate fees, lawyers fees, STAMP DUTY (ggrrrrr which was supposed to go when GST was introduced), other charges .. to sell and then get back into the market. You would have to see the market dropping double digits to have made it worth the exercise. Perhaps the best thing to do would have to gone and get a valuation (if you thought prices were high and gotten a line of credit and had that available for any entry into bargain prices should that have eventuated).
Comment by Rob Forex Trading Mentor — July 29, 2010 @ 8:34 pm