Is Australia in a Housing Bubble?

Steadily rising house prices, fueled by record low interest rates, are sparking fears of an impending crash in Australia’s property market.

Talk of a property bubble is increasing while questions continue around affordability, particularly in the surging Sydney and Melbourne markets.

So what is a housing bubble, are we in one, and what can you do to protect yourself?

General Manager of Sales and Operations for Australian Finance Group Mark Hewitt says a housing bubble occurs when there is unsustainable growth in property prices.

The bubble ‘bursts’ when there is a significant shift downwards, normally caused by a unforseen economic event.

But Hewitt says Australia has never really seen a housing bubble like those experienced in the US and  some part of Europe following the GFC.

“People are getting the potential for a slight price correction or a slowdown in growth mixed up with a burst property bubble,” he says.

He points to the current housing market in Perth as an example, saying the market is in a state of correction following a large influx of money during the mining boom where there was “a lot of people with spare cash”.

He says the market there has softened in the past couple of years as the mining boom draws to a close.

“Growth has slowed but it has not completely stopped,” Hewitt says.

Hewitt says it’s a similar story on the east coast.

“The market is hot in Melbourne and Sydney right now, but they will have periods where growth slows like any market, but I don’t think there will be a major reduction in property values.”

What can you do to protect yourself?

Hewitt says owner-occupiers and investors should look at property as a long-term investment, and be prepared for shifts in the market.

“You should always leave yourself a buffer,” he says.

“You should be in a situation where repayments on your property are not going to stretch you.”

He says people looking to make large amounts of money in a short amount of time shouldn’t look to the property market, as it’s extremely rare that you will get the timing perfect.

“Don’t go into it with the view you are going to make an instant gain.”

Source: Sarah Millar Realestate.com

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