This article is from the Australian Property Journal archive
TREASURY Secretary John Fraser has told a Senates committee hearing that the Sydney housing market shows unequivocal signs of a housing bubble, along with some areas of Melbourne.
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“When you look at the housing price bubble evidence, it`s unequivocally the case in Sydney. Unequivocally,” Fraser told a Senate committee.
“Frankly, whatever the data says, just casual observation can tell you it`s the case.
“Certainly I think that`s the case in the higher priced areas of Melbourne, and I base that on my own observation as well as the data,” he said.
Fraser added that the signs of a housing bubble are less compelling in other cities.
Fraser told the Senate that he believes the low interest rate environment is fuelling risky residential investment practises.
“It does worry me that the very very low, historically low levels of interest rates are encouraging people to perhaps over invest in housing.
“I’m not talking just about buying housing, I’m talking about investing housing.
“You just need see the plethora of these renovation shows to realise something’s amiss,” he continued.
The subject of a housing boom or bubble continually splits the market.
Recently National Australia Bank chief economist Alan Oster reiterated his view that there is no housing bubble in Sydney and Melbourne.
“They’ve been wrong for 10 years. You need to be very careful when you just say it happened in America therefore it’s going to happen here.
“Number one, supply and demand really matters. Look at the Gold Coast after 2007, and the reverse angle look at Sydney today. We’re not saying everything’s fine — you could argue there is an affordability issue — but things at this stage are okay,” he added.
“If you’re asking, what would cause a big crash? It would be people not having the ability to pay their interest because they’ve lost their job. When we do a stress test, we look at the level of unemployment, and it tends to be that if you get to between 8 and 8.5%, everybody sells because nobody can afford to pay anymore,” Oster said.
Earlier this week, Australian Property Institute Victoria and Opteon Property Group director Matthew Baxter said whilst the talk of boom or bust should not be ignored, the fundamentals over the medium-to-longer-term for Melbourne’s property market remain sound.
Baxter said a crash would normally be associated with a mostly unforeseen event, such as the global financial crisis, significantly affecting supply and demand.
“When we look back at 2008 and the GFC there was a dramatic reduction in demand and buyer activity in second half of 2008. However, the Melbourne values only reduced relatively marginally.
“Why? Because sellers did not need to meet the market (holistically) as interest rates reduced in a short period of time and Federal Governments stimulus package (well placed or not) worked to pump up the economy.
“Now compare this to 1990 when the economy crashed, sellers could not take option of holding, interest rates had hit 17% coupled with housing values that increased 83% over five years, an average compounding increase of 13% per year,” he pointed said.
Baxter said the current median value of houses is $688,000 (as at March quarter 2015) which reflects a 32% increase of the 2010 median of $420,000, an average compounding increase of 5.8% per year.
“On these numbers values don’t seem to be escalating out of control, although the last 12 months has seen a 10% increase, and higher in the inner suburbs. This is above the 30-year average of 7.6% average increase per annum.
“Yes, there has been significant year-on-year growth in the last 10 years, however we don’t believe Melbourne’s’ current median house value – of $688,000 – has escalated out of control.
“We’re also experiencing a robust clearance rate that’s been consistently up around 75% over the past few months, proving there’s plenty of buyer demand,” he added.
Baxter said overseas buyers are making their presence felt in Melbourne, particularly in the new apartment and unit sectors and he warns that might create a two-tier market.
“The next two years could potentially see all-time high numbers of new or off the plan apartment towers being offered to the market. Developers and agents are targeting the rich overseas source of buyers who anecdotally are not as price-sensitive as local buyers.
“A problem for this sector is the potential to create a two tiered market whereby overseas investors are prepared to pay a higher price for new and off the plan apartments compared to local buyers buying second hand stock.
“This could compromise the market stability in this sector if large numbers of apartments come back onto the market (second hand stock) or investment buyers from overseas dry up,” Baxter warned.
Australian Property Journal
