The Australian property bubble

Has the housing bubble burst? Finder has gathered property data and expert commentary to provide an overview of the Australian property market.

Housing bubble: a period of unsustainably high, fast growth in property prices ending inevitably in a sharp decline.

For years Australians have debated whether the booming property market in many cities meant we were in a housing bubble. But now that property prices are falling fast the question is this:

  • Are we seeing the housing bubble burst or is this a slow, careful correction?

We've gathered a wealth of property data and some expert commentary to give you a clearer picture of the Australian housing market.

How have prices changed in Australia's cities?

This graph shows the median property prices in Australia's biggest cities from 2016 to the end of 2018.

These figures show that the Sydney market peaked in 2017 and has dropped ever since. Melbourne also peaked in 2017 but prices there ended 2018 slightly ahead of where they were in 2016.

But it's important to keep in mind that prices in Sydney and Melbourne grew steadily throughout the early 2010s. The recent falls, while dramatic, still mean housing affordability is a problem in these cities.

Brisbane, Adelaide and Canberra have been much less volatile, while prices in Hobart have soared. Perth has been falling consistently for years as the mining boom winds down.

As property investor Chris Gray told Finder back in 2015 when asked about the property bubble, "There's so many different markets around Australia, which are all different by price and geography, so it’s hard to understand one market, let alone multiple."

How much are Australians borrowing to buy homes?

This graph displays ABS data on the number of mortgages Australians take out to buy homes (not investments) and the total value of those loans. Viewed over the last few years you can see the decline in Australia's property market.

The ABS statistics provide an interesting snapshot of the overall housing market. If you want more statistics you could check out the following pages:

Boom and Doom Property Index

How healthy is your suburb? Check out Finder's unique tool for tracking the market performance of suburbs in Australian cities. Read more.

What do Australian property experts think about a property bubble?

There's so much data to analyse when it comes to property markets and no two experts will ever give you quite the same answer. This is perfectly reasonable, given the complexity of the topic.

Here are some recent comments from Australian property experts on the current and future state of the market.

ExpertCommentSource
Bill Evans – Westpac chief economist"Our estimates of the need to restore affordability and the impact of tighter lending standards on prices point to falls of around 5–10% in Sydney and Melbourne over the course of 2019 complemented by softness in other markets."Westpac report (PDF)
Shane Oliver – AMP chief economist"Whether you call it a bubble burst or a slow deflation is just a question of semantics and also depends on where you live in those cities with some suburbs seeing sharp falls and others holding up pretty well or still seeing gains... Prices are expected to fall another 15% or so in Sydney and Melbourne out to next year but the falls are unlikely to accelerate unless unemployment rises significantly causing defaults and forced selling (which is unlikely). Solid population growth will also help provide a floor for property prices. Other cities are likely to see broadly flat prices as they ether didn't have a boom so won't have a bust or in the case of both Perth and Darwin they have already had a bust."Finder: Supplied
Lindsay David – LF Economics"We think there's a chance property prices could fall by half in Sydney and Melbourne over the long run… I wouldn't be surprised by falls of at least 40%. When all hell breaks loose you've only got so many buyers out there."Quoted in news.com.au
Cameron Kusher – CoreLogic head of research Australia"Although inflation remains below the RBA's target range, values are expected to continue to fall throughout 2019. As a result, real dwelling values are likely to move further away from their previous peaks, even in those cities where values have already experienced a substantial correction."CoreLogic report
Philip Lowe – Governor, Reserve Bank of Australia"The housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run-up in prices. Conditions have weakened further in both markets and rent inflation remains low. Credit conditions for some borrowers are tighter than they have been. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed."February 2019 Media release

What happens if interest rates keep rising?

Mortgage interest rates are currently very low and this is often cited as a major factor underpinning the growth of a property bubble in the first place.

But lenders have been lifting rates over the last year because of increased costs related to funding their loans. This has happened even as the Reserve Bank of Australia continues to keep the cash rate low.

If interest rates rise further in 2019 many borrowers will be under pressure as their mortgage repayments increase. It will also make it harder for new home buyers to enter the market, although falling property prices could offset this.

There's also a chance that rates will go down. Every month Finder asks its panel of economists and experts to forecast the RBA's cash rate decision. In recent months, a majority of experts have started to predict further cuts to the cash rate, which lenders could pass on to borrowers.

This could help the housing market stay afloat, or at least slow the bubble's deflation.

What our experts think the next RBA move will be

How do I protect myself from a property collapse?

The words "bubble" and "burst" are very stressful if you're a property owner. There's no need to panic, but you need to assess your situation and prepare for the worst.

Homeowners

  • Build up equity. When prices are dropping fast your home could be losing value. If you haven't repaid much of your mortgage principal (the amount you've borrowed) then you could be in negative equity. Try to build equity by making extra repayments on your mortgage. If you're on an interest-only loan, consider switching to a principal and interest loan. The more of your home you actually own, the better protected you are in a crash.
  • Refinance. When did you last check your mortgage interest rate? Switching to a home loan with a lower rate will save you money. And you'd better switch fast. As prices fall, so does your equity (the amount of the property you own versus how much you owe the lender). This makes it harder to refinance.
  • Assess your position. Is your current home big enough for your family? Will you need to upgrade soon? If your property suits your needs and you're not worried about selling or upgrading then a property bubble doesn't affect you all that much.

Investors

  • Build up a cash buffer. If you're relying on rental income it's always wise to have a cash buffer. This means setting aside extra cash for property maintenance and mortgage repayments in the event that your rental income can't cover your expenses.
  • Reassess your strategy. A lot of investors made a lot of money buying houses in Australia and enjoying extraordinary price growth over the last few years (check out our FOMO suburbs article to see the staggering amount of money some people made). But now the bubble years look to be over this kind of strategy is harder to pull off. You might need to switch to a longer term "buy and hold" strategy.

First home buyers

Australians looking to buy their first homes have been cheering on the collapse of the property market for years. But patience and planning are still paramount:

  • Do your homework. You might have more options now than you did a year ago, so it pays to really research the market. Bargains abound, but you also don't want to pay too much money to a seller who still thinks the market is booming. Compare, compare, compare!
  • Be wary if buying off the plan. In a falling market, the value of a property prior to construction may be much higher than what it ends up being worth at settlement when the building is completed. You need to read your contract carefully and understand what you're getting into.
  • Don't try to pick the "bottom" of the market. If you're buying a place to live then buy a place you can afford that suits your needs. That should be your priority. Don't obsess over the bubble bursting and try to buy at the market's lowest point, which is likely to be a fruitless endeavour. Remember, you're buying a home not an investment.

The latest housing bubble and property news

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2 Responses

  1. Default Gravatar
    TaraJune 8, 2018

    I’ve had my property for lease in the market for 4 months but was still not able to lease it out. This had never happened for the last 9 years, a sign of over supply, area is Eastwood NSW

    • Default Gravatar
      ArnoldJune 8, 2018

      Hi Tara,

      Thanks for your inquiry

      While regulations in Australia ensure that undisciplined borrowers cannot simply access the keys to a property without meeting rigid serviceability requirements, some property investors could suffer if the property ‘bubble’ bursts.

      Whether you’re an owner-occupier or an investor, you should view property as a long-term investment and prepare for market changes.

      The experts above say that the main form of protection is not to be excessively geared. If you have conservative levels of gearing, then you can probably afford to ride out a period of price decline in the property market just as investors in the share market who are typically less geared than property investors have to do.

      Hope this information helps

      Cheers,
      Arnold

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