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Australian property? Take note of ‘what if’ 2017 bubble bursting

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Reported in news.com.au on 22 May 2015. Lindsay David, founder of LF Economics has issued his predictions about the state of Australia’s property market. He said that there are clear parallels between Australia today and the US and Ireland pre-2007. “People think you’re crazy, but slowly but surely I see a lot more people coming around to the idea,” he said. “But when everyone knows there’s a bubble, it’s too late.” He then gave an on the ground example of a comparison between Australia’s Alice Springs versus a piece of vacant land in Malibu, California which is just 2km away from the beach. Alice Springs is more expensive today!

He gave some additional numbers as follows: Between 1996 and 2014, household debt outpaced inflation at a rate of 10 to one. Besides a buyer in Sydney would have to save 30 percent of their income for 6.5 years just to be able to afford a 20 percent deposit for a median-priced home. He said, ““House prices in Sydney aren’t as high as they are because there’s a housing shortage and everyone miraculously has $900,000 sitting in their pocket. The banks have to keep lending more so house prices can stay up.”

National Australia Bank’s (NAB) chief economist Alan Oster disagrees and said that all these predictions have been going on for years. In fact they have been wrong for 10 years. He however agreed that affordability is an issue but as at today, things remain okay. In fact for any crash to happen, it should start with people’s inability to pay because they have lost their job. In a stress test of the level of unemployment in Australia, it should reach between 8 – 8.5 percent before everyone sells. This may cause up to 30 percent fall in house prices but this fall is not the same as having the property market crashing.

Personally, I agree in terms of prices it is becoming a little unaffordable. Median house price in Sydney is already AUD690,000. Read here: Be reminded, median price is AUD690,000 today. However, for a property market to crash, Australian economy may have to show weaknesses first. Some signs may be a slowing growth followed by perhaps even a technical recession. When that happens, it’s time to be on the safer side. Remember, wealth is to be protected and risk is to be calculated. Reserve Bank of Australia has forecasted a GDP growth of 2.5 percent for 2015 followed by a 2.75 – 3.75 percent for 2016.  Happy buying Australia or anywhere else you feel is attractive.

written on 27 May 2015

Next suggested article: Malaysia: good health care, lower living cost

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