What Price Bubble?

After experiencing strong gains for some time, growth in house prices has slowed right down. Over the last few months we have seen house prices plateau, even fall in some areas.

Buyers waiting on a property price crash however, might be wasting their time. The risk of big housing price declines seems low. The most plausible scenario that could possibly prick the so called price bubble is widespread job losses. This doesn’t appear likely considering our latest unemployment figures recorded a further drop in unemployment.

Rismark International, a leading property research company, says that despite substantial gains, house prices in Australia remain equal to about 4.6 times the average disposable household income. This undermines the argument that Australian house prices are 7.5 times family incomes and because of this we are facing a housing bubble that is about to burst.

Rismark International’s estimate of the Australian median dwelling price is based on all sales throughout the country and is not based only on house prices in the cities, which is what the other analysts use to arrive at the figure of 7.5 times.

Australia’s Reserve Bank Deputy Governor, Ric Battellino says “If you look across the whole country, the ratios of house prices to income is not that different from most other countries.” He also agrees that house prices are not at risk of crashing.

Cameron Kusher, senior analyst at RP Data, suggests that Melbourne may be in for a period of below average growth. This is because historically when a city outperforms the national level of growth, as Melbourne has done for the last two years, it records sluggish growth the following period.

The market however does not behave uniformly, so performance of individual housing markets will vary greatly from area to area.

Some parts of regional Australia could stand to benefit more, from the Federal Government’s proposed injection of funds for major projects in some of these areas.



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