This week, the ABC’s The Business will air three special reports on “Property, banking and how the government and regulators are handling bubble risk.”
Tonight’s special report can be watched online at Plenty of froth over housing, but is it a bubble?.
Lindsay David, author of Australia Boom to Bust has no doubts we are in a credit fuelled housing bubble showing the ABC reporter, a 65 year old weatherboard home, 45 minutes from Sydney that recently sold for $1.38 million, $300,000 over reserve. The reporter compared the price to other homes overseas and presented data showing over the past 40 years, Australia had the strongest house price growth of any country except Norway. Lindsay also dismissed any notion we had a housing shortage.
SQM Research’s Louis Christopher said at this point the Sydney property market was 25 per cent over valued and would likely to be 40 per cent overvalued by the end of the year. Louis indicated other markets were already correcting, like Perth where rents are down 8 per cent and prices are being held up only by cheap credit. “Darwin was clearly in correction territory.”
The reporter touched on Australia’s record level of household debt, recently hitting 153.8% of household disposable income. Lindsay said this level of debt leaves the whole property market vulnerable to potential prices falls of up to 50 per cent. “What history tells us, is that when bubbles burst, we move back to the long term medians, in the event of deleveraging”
Emeritus Prof. Mike Berry says property bubbles need a trigger to pop, suggesting rising interest rates or moves to limit house lending could trigger the pop. Another external shock, he suggests, could be the Chinese economy “suddenly hitting the wall” that would quickly see unemployment rise and demand for housing “fall quite significantly, quite quickly.”
The ABC reporter concludes, “But it is also possible that the property market could ultimately collapse simply under the weight of its own debt”
The Business airs on ABC News 24 at 8:30pm AEDT.
» Plenty of froth over housing, but is it a bubble? – The ABC, The Business, 13th April 2015.