INVESTMENTS AND SUPERANNUATION

The property market – is it a bubble about to burst?

The property market - is it a bubble?

In the red corner we have market analysts, hedge funds and economists lining up to predict a property market crash, using words like “catastrophe” and “doom”. In the green corner, we have economists ridiculing these claims as “hysterical”, and an evidently relaxed Reserve Bank of Australia.

So which is right? Is the property market about to fall off a cliff? Or will it be business as usual?

The doomsayers point to ‘clear evidence’…

Household debt levels at around 130% of GDP (the size of the economy) compared with a world average below 90%.

Increases in house prices over the last two decades, compared to income growth or rents. In the last three or four years alone, prices in some parts of Sydney and Melbourne have risen 50-100%.

A high proportion of residential mortgages: over 60% of total loans in Australia, compared with 15-45% in comparable countries.

The popularity of interest-only loans, now around 40% of all residential loans, and negative gearing.

Total real estate valued at 3.8 times GDP (the size of the economy), compared with Ireland and Japan which were at 3.5 times GDP before they experienced a housing market crash.

Indications that foreign buyers are pulling back.

Expected oversupply in apartments particularly in the inner-city areas of Melbourne and Brisbane.

Sounds worryingly convincing, doesn’t it?

So why aren’t major bank economists or the RBA worried?

READ MORE  [page 2/2]

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