Australian housing market continues to be looked as a speculative bubble that has been driven by low interest rates, tax breaks, and mortgage stress. The market value of Australia’s homes is said to have reached $7.3 trillion with the last five years of price hikes, and this is estimated to be four times gross domestic product.
Every now and then, the speculation of its burst comes into limelight with any miniscule level of activity. The property price dip in Sydney has aggravated the concerns lately. The property sector has been an expensive one when scaled against income and rents, with a weak affordability creeping in while there has been rise in debts. This has dented the overall Australia’s financial stability.
On a regional landscape basis, it is worth noting that dwelling prices were on the upswing over the last five years and estimated to be at an average annualised rate of over 11% per annum in Sydney and over 9% in Melbourne, while prices in regions including Brisbane, Adelaide and Hobart have risen by only a relatively small percentage with Perth and Darwin on the other side of the ledger. The housing market has also been propelled hard by rising demand with increase in net immigration and population, while the supply has remained low. However, recently some market experts have indicated for an oversupply instead, with inner city areas of Sydney, Melbourne and Brisbane having extra housing, although other areas have been witnessing shortages; and this mounts up the uncertainty prevailing in the sector.
However, Reserve Bank of Australia governor Philip Lowe, in a recent address, explained on Sydney and Melbourne being the superstar cities that appear to rationalise the house price scenario beyond the effect of low interest rates. Further, it was emphasized that Melbourne does not face an oversupply problem.
Housing Prices (Source: Reserve Bank of Australia)
On the other side, it is believed that given the scenario, the Sydney and Melbourne property markets might witness a sluggishness in view of the factors including APRA’s regulatory measures for capping lending to investors and interest only buyers. Further, the basis that property market may crash does not deduce any significant support from signs of recession given the latest jobs data scenario and expectations to have gradual rise in interest rates in 2018.
Overall, the market consensus goes for a sluggish trend but not spiking towards a property market crash immediately. Meanwhile, investors with a long-term view on properties might want to be wary of investments in the now so-less attractive Sydney and Melbourne regions.
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