Doomsday economists have it wrong

“Doomsday” economists were adamant that Australia’s housing market would collapse under the combined weight of affordability issues and the GFC last year and many still insist there’s a growing housing bubble. But house values rose significantly over the last 12 months and according to Macquarie Bank economist Rory Robertson, claims of a housing bubble “don’t stand up to serious scrutiny”.

The latest statistics from Residex confirm that there has been strong capital growth over the last 12 months in most of our capital cities.

Source: Residex June 2010, Metropole Property Strategists.

In a recent report in The Australian, Robertson says: “Most observers can see positives – including a growing economy and limited new housing supply despite rapid population growth – and negatives, including higher mortgage rates recently, alongside funding stresses and deleveraging in local and global financial systems.”

With these forces applying pressure on our housing markets, Robertson says average prices might rise or fall slightly over the coming year, but a US style market collapse is not on the cards.

He dismisses claims from investment legend Jeremy Grantham that suggest an Australian property bubble is forming, with prices allegedly around twice that of what they “should be”. Grantham says that prices have to drop to a more “normal” level that reflects the average family income.

Robertson’s response? “Don’t bet on it.”

Robertson says comparing the Australian housing market to its US counterpart (where house prices fell by 30% recently) is like “chalk and cheese”. For one, our unemployment levels are almost half those of the US (5% versus close to 10%), and our mortgage markets are managed under strict regulations.

That’s not to say that affordability isn’t a concern. Robertson reports that although we have an overall home ownership rate of 70%, which has held steady for decades, the home ownership rate for Australian households under the age of 35 years has declined from 50% in the late 80s to 40% today.

However, Robertson says that while young people are finding it harder to break into the property market in areas they want to live, “…contrary to some claims – not everyone is over geared… Across all households, mortgage debt amounts to about 30% of total housing assets. Is that over geared?”

Robertson says with the majority of Australians traditionally opting to live in our most desirable locations – in and around our six coastal capital cities that already house almost two-thirds of our 22.4 million population – it’s unlikely that house prices here will suffer a devastating nose dive any time soon.

Particularly given that we are currently experiencing record immigration, with almost three times the new arrivals per annum (currently around 300,000) than usual, even though we only tend to build 150,000 or so new homes every year.

“Australian home prices are relatively high in part because, rather than ‘spreading out’ across our continent, most of us choose to compete in living in the best-located places near the beach,” says Robertson.

Do you think Australian property prices are too high and will collapse? Leave your comments below.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.