Professor Vernon Smith, an expert on housing bubbles and recipient of a Nobel prize for Economics for his work, told the Australian Financial Review earlier this week, “You have a pretty good [property] bubble in Sydney and Melbourne.”
“It is hard to believe it is very sustainable.”
On Thursday, Professor Smith addressed a Macquarie Graduate School of Management dinner on global house prices.
Data to be released on Monday by CoreLogic RP Data will confirm Smith’s views. The Australian reports CoreLogic RP Data will show Melbourne house prices surged 4.8 per cent in July, up from 2.9 percent recorded in June. If the 4.8 per cent result were annualised, it would top 57 per cent!
Sydney house prices are expected to rise 3.2 percent for the month.
“It is amazing how people get carried away in the bubble,” Professor Smith told the AFR. “Then all of a sudden it’s over and they are petrified.”
The out of control house price growth in Australia has the banking regulator concerned about the inevitable crash. Fearing possible bank collapses when the bubble bursts, APRA has instructed our big banks must bolster capital.
In recent weeks the regulator has forced banks to increase mortgage rates for investors getting carried away in the bubble, in a bid to slow the dangerous market. The ANZ and CBA were the first to announce rate increases of 27 basis points for investor mortgages. NAB has increased rates on interest only loans by 29 basis points, while Westpac – plagued by IT problems, only today announced investor interest rates will increase by 27 basis points.
For AMP, irrational property investors are just too risky. It has decided the cease lending to property investors altogether, effective immediately while it hikes rates for existing investors by 47 basis points on the 7th September.
» Housing bubble could burn investors, warns Nobel Prize-winning economist – The ABC, 30th July 2015.
» ‘You have a pretty good bubble in Sydney and Melbourne’: Nobel-winning economist warns property buyers not to get ‘carried away’ as AMP Bank cracks down on investment loans – The Daily Mail, 30th July 2015.
» Westpac jacks up interest rates for housing investors – Sydney Morning Herald, 31st July 2015.
» AMP slaps ban on loans to property investors as expert sees end to housing bubble – The ABC, 29th July 2015.