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Do We Have A Housing Bubble?

Co-authors: Regina Collins, TJ Ryan

Is there an Australian housing bubble? The question of a housing bubble has been debated for years.

The Australian love affair with housing debt continues to fuel the argument that conditions are building for a “correction” of some sort in the future, with people saying the housing bubble is ready to pop. This would mean housing prices trending downwards.

Unfortunately, declines in property values can mean debt servicing becomes slightly more difficult, particularly for those with interest only home loans, an option favoured by many property investors.

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Does Australia have a housing bubble?

As of June 2017, it looks like the Australian housing bubble may have peaked, following the steep and rapid rise of housing prices in Australia post-financial deregulation.

We are now seeing housing prices beginning to fall again, and indications seem to be that the previous growth in housing prices may have gone as high as it was going to. Of course, nothing is guaranteed, but here is a brief summary of what the data shows.

CoreLogic’s Quarterly Review for the capital cities over the quarter to April 2017 shows that house prices had exploded upwards over the past year. But the monthly updates from CoreLogic show that property prices finally fell in April 2017 in most capital cities.

According to CoreLogic:

  • Annual housing price growth:
    • Combined capital city home values have recorded annual value growth of 12.9% over the 12 months to April 2017. This is more than double the 6.1% figure from the 2 months to July 2016.
    • 4 of the 8 capital cities recorded annual value growth of more than 10% over the past year: Sydney (+18.9%), Melbourne (+15.9%), Canberra (+12.8%), and Hobart (+10.2%).
    • 2 of the 8 capital cities were the only capital cities to record annual value declines for the past year: Perth (-4.7%) and Darwin (-4.4%).
    • Following dwelling value falls of around 6% during the global financial crisis, combined capital city dwelling values have now increased by 68.5% since the end of 2008.
  • Monthly property prices:
    • Property prices fell in Sydney, Melbourne, Adelaide, and Perth in April 2017.
    • Sydney and Melbourne dwelling prices remain more expensive than house prices in all other capital cities.
  • Property sale rates:
    • Auction clearance rates remain strong at 76% nationally in April 2017.
  • Rental rates:
    • Rental prices have fallen over the year, showing the effects of the surge in new housing supply, resulting in the weak market conditions.

In terms of annual housing price growth, housing prices were still growing rapidly in Sydney and Melbourne over the past year. The rate of annual housing price growth in Sydney has increased by 18.9%, with Melbourne not far behind with an increase of 15.9% over the past year. That is some substantial growth!

The same can be said for Canberra and Hobart, where dwelling values increased by 12.8% and 10.2% respectively over the past 12 months. This has been a huge amount of growth compared to the 12 months to July 2016, when Canberra’s annual growth rate was at 7.6%, and Hobart’s values had increased by only 6.5% that year.

This doesn’t mean that households or investors should bank on house prices continuing to go up, however. The latest monthly updates from CoreLogic show prices are beginning to fall now in most capital cities.

In fact, prices have been falling for the last year in Perth and Darwin, and in mining towns like Karratha demand for housing waned alongside mining investment.

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Australian housing growth

How the housing bubble affected first home buyers

Due to the increase in housing prices for first home buyers, it’s not surprising that more students are considering letting their parents go guarantor on a home loan. Despite our low home loan interest rates, one third of first home buyers are worried about their debt.

This means it’s more important than ever to look for the right type of home loan as a first home buyer. Our checklist to choosing a home loan checklist can help you figure out what you’re looking for, so that you can compare your options for first home buyers using the Canstar website.

The table below shows a selection of variable home loans available on the Canstar database for first home buyers located in NSW with direct links to the providers website, for a loan amount of $500,000 with an LVR of 80% (20% deposit) sorted by comparison rate (lowest – highest).

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Regulatory response to the Australian housing bubble

APRA’s move to tighten the rules around banks’ lending, particularly for interest only home loans, along with a crackdown on foreign property purchases, may have a beneficial impact on property supply and demand.

However, moderating property growth certainly doesn’t equate to the popping of a bubble.

Those who have bought with the expectation that housing prices will continue to rise in the near future might possibly end up feeling just a little deflated.

If your home or investment property is no longer worth as much as it was, the least you can do is make sure your mortgage is not costing you more than it should. Compare home loan interest rates, fees, and features using the Canstar website.

The table below shows a selection of home loans available on the Canstar database for property investors located in Victoria with direct links to the providers website, for a loan amount of $500,000 with an LVR of 80% (20% deposit) sorted by our star ratings (highest-lowest).

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