As any aussie house hunter or home seller will no doubt be all too aware, average house prices in Australia have been steadily increasing over the last few years and appear to be showing no sign of slowing.
In fact, just last month the data crunchers at RP Data reported prices had risen 3.7 per cent in Melbourne, 2.8 per cent in Darwin and confirmed overall increases in Sydney and Canberra.
But is growth on this scale sustainable, or are we looking at a bubble that’s heading towards its inevitable conclusion?
What the experts are saying
Investment bank HSBC appear to be saying the risk of Australia’s housing prices overinflating is rising, particularly in Sydney where price growth is currently around twice that of other cities.
Their Chief Economist Paul Bloxham was quoted in a recent interview with The Australian: “Australia does not currently have a housing bubble, (but) it seems likely that if the current housing market trends were to persist for too long, there would be a risk of inflating one.” However, he also pointed out that this rise could be less than it appears due to a recent dip in prices that means the actual increase is more in the region of 8%.
HSBC noted national house prices increased 16 per cent over the past two years following an 8 per cent fall the two years before. “So part of the rise is just catch-up,” Mr Bloxham said. “As long as interest rates remain low, we expect the housing boom to continue, with housing price growth of around 10 per cent forecast for 2014 as a whole,” he continued.
Over at RP Data, Chief number cruncher Tim Lawless is of the opinion that a gradual slow down in the prices will continue, saying the past six months have shown a slower pace of price appreciation than the peak of the boom in winter and spring last year in the same article. He elaborated by saying: “Low yielding market conditions in Sydney and Melbourne are likely to act as a disincentive to investors, as well as the fact that these markets are well advanced in their growth cycle,” then adding “additionally, with affordability becoming a more pressing issue in Sydney we would expect buyers to be seeking out medium to high density dwellings located close to the city rather than where they could afford to buy a detached home.”
How the Australian bubble compares…
We’re not the first housing market to experience a bubble, and just because the effect is named after a physical phenomenon usually met with a dramatic end, it’s not to say that this is a foregone conclusion. Take London, for example. A market that’s recently had unprecedented growth has seen house prices jump by twice the average income.
The latest monthly house price index from the ONS shows that prices in London rose by 17.7 per cent in the last year to February 2014. Critics say this sharp rise in property prices demonstrates that the housing market is out of control; however others argue the growth is sustainable and is benefiting the wider economy.
So are rising house prices harbingers of boom or destined to burst with a bang?
While contemplating the conclusion, why not think about the situation on the other side of the globe?
The average property price in the UK is now £253,000 ($458,731) – up by almost £50,000 ($90,658) compared to 2010 prices. The typical home in London now costs a staggering £458,000 ($830,340).
That puts the average London abode close to $200,000 ahead of Sydney in terms of price. Which means our bubble has got a long way to go before it catches up.
Last month’s RD Data report
Home prices in July (Prices in AUD)
- Sydney: up 1.5 per cent, median price $650,000.
- Melbourne: up 3.7 per cent, median price $540,000.
- Brisbane: down 0.1 per cent, median price $450,000.
- Adelaide: down 0.1 per cent, median price $395,000.
- Perth: down 0.5 per cent, median price $519,000.
- Hobart: down 0.6 per cent, median price $300,000.
- Canberra: up 1.5 per cent, median price $516,250.
- Darwin: up 2.8 per cent, median price $515,000.
Figures from RP Data-Rismark Home Value Index