Is the Australian property market in a significant bubble? Will Australia’s real estate fall and should homeowners be bracing for a price dive?
Property bubbles have caused many of the major financial crises happening in the world right now. Very much like the predicaments confronted by the US, England, Ireland, Spain and Denmark, Australia’s brewing housing bubble could very well be the next one to pop.
Investopedia defines the housing bubble as:
“A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand (a shift to the right in the demand curve), in the face of limited supply which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases (a shift to the left in the demand curve), or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble bursts.”
Australian property is branded to be the second most overvalued in the world where the house prices are up to 30 percent higher than they should be, something that is outside the historical norms.
Property prices are higher, especially in Australia’s two major cities, Sydney and Melbourne. These two cities have a larger population of all the capital cities, as well as higher levels of population growth. These major cities also attract a larger number of overseas migrants and investors. Nevertheless, experts still maintain that the rise in housing prices could very well threaten the country’s economic and financial stability.
Author Lindsay David sees Australia in one of the worst housing bubbles of all time. He believes this bubble is the result of Australia’s over-leveraged banking system and wealth creation strategy which has made Australians stuck in debt traps. Property prices are going up, but the wages do not reflect that. The poor and the middle class are hurting and not even debt consolidation can save young Australians from their dangerous housing bubble.
Although others are saying there is no evidence of a property bubble in Australia and that there is nothing to worry about, there’s no getting around the fact that our real estate is abnormally pricey – an indication that we probably just might be in that bubble.