Reasons Australian property wont crash

Determining the future of the Australian real estate market can be tricky, but there are many reasons to believe that it will not go through a bust cycle in the near future.

Of course, after several really good years the Australian real estate market has entered a flat period. Some people are predicting a real estate crash simply because housing prices have risen too high over a short period of time and are now unaffordable to many people. Some Other financial advisers and economists have suggested that Australian people have taken on too much debt.

Before jumping to this conclusion, however, let’s start by looking at the housing market over the past several years. Sydney had a great real estate boom from 2001 to 2004. After this boom, however, the property market underwent a correction. It did not undergo a total collapse but property values fell by about 9.3% over 23 months according to the firm RP Data.

Not all areas of the Sydney market dropped equally in value, however. In fact, some areas held their values well. Today, though, most real estate properties have a higher value than they had in 2004.

Other areas such as Brisbane and Perth have followed similar trajectories over the past several years. In the 1990s and 1980s, property values did the same thing during recessions. In fact, the only time Australian property values have drastically crashed was at the end of World War II and during the Great Depression. Granted, there have been some spectacular collapses due to over speculation, but in general the Australian real estate market has remained stable.

There are four main reasons why the real estate market could crash. A depression or a severe recession, high unemployment levels, rising interest rates, and a huge oversupply of properties. Since unemployment levels are currently fairly low, the likelihood of a recession or sudden high unemployment is fairly low. Interest rates rising too high also seems unlikely, since there is no reason for the central bank to do this. An oversupply of housing has become an issue only in isolated areas, and is not an issue in most major cities.

There are a number of reasons why the market will not crash, however. To start, the recent robust population growth that has been caused by immigration and a strong natural population growth ensures that there will be a steady supply of interested consumers. Next, the healthy economy is not showing signs of slowing down. Unemployment is at a low point, and households are not reporting significant levels of financial distress. Australia also has a sound banking system that is offering reasonable interest rates along with tight lending practices, leading to low default rates.

In addition to these reasons, there is also a shortage of available properties for sale and rent in some locations, which translates to rising rental prices. Several developers have also reported difficultly in getting financing for large new developments. Combined with rising construction costs, this means new construction will be more expensive, helping to underpin the value of older homes.

On a personal level, Australians currently have a healthy amount of household debt. While Australian families are borrowing more, the debt tends to be carried by those who can afford it. Additionally, many Australians are saving more and taking on less credit card debt. This responsibility reduces the risk of housing prices collapsing in the case that interest rates rise or the economy falters. This country also has a culture of home ownership. Nearly seventy per cent of us own or are paying off our homes. In addition, nearly half of all homes have no debt against them.

In summary, Australian housing prices are high, but affordability has increased over the past several years due to flat property prices combined with wage growth. There is still a large demand for housing, as well. People who cannot purchase a house will be forced to rent, increasing rental prices.

While there may no longer be the huge jumps in prices that we’ve seen over the past several years, real estate prices will become more stable. Investors may not see a lot of growth in their asset portfolio, but rising rental prices will compensate for this. Investors should be able to find great investment properties at low prices if they do their research and negotiate wisely.

 
Article written and supplied by Anna K.

Anna K. is a journalist from Brisbane, Australia. She writes for several blogs about finance topics such as real estate, insurance and several others which attract attention of many readers.

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