Macquarie Research’s Rory Robertson
believes that strong fundamentals have
lifted the Australian property market,
rather than a speculative bubble.
Australian property prices have risen
on average 8% per annum over the past
100 years, and through the recent Global
Financial Crisis, they actually doubled
this rate of increase! Coming on top of a slowdown in job
creation and wage restraint, some
analysts say
that the price-to-income ratios (i.e.
house prices to wages) are out of whack,
and that we are facing a property price
bubble that has the risk of bursting.
Not so, says Macquarie Research’s
Rory Robertson, who lists a number of
fundamental reasons why Australian property
prices can’t be compared to what
happened in overseas markets like the
US and Japan. He says the ‘bubble
doomsayers’ are missing key information
underlying the strong showing of the
Australian housing sector.
These include:
-
Australian mortgage markets were carefully
supervised and only offered
full-recourse
loans
- Demand had remained strong due
to record immigration numbers (near
300,000
per year)
- There had not been an issue with
overbuilding like in the USA. On
the contrary, there
is an undersupply of housing.
- Property positioned in close proximity
to working nodes, education facilities
and recreation opportunities remains
a strong proposition.
Robertson is quoted in a recent API
article as saying, “There’s
extraordinary and ongoing rapid growth
in the number of actual people in Australia
with money wanting to own or rent houses
in which to live, as opposed to living
in tents and shipping containers.”
He feels the only way prices could drop
significantly in the future would be
if housing credit dried up due to severely
stressed offshore funding markets.
This is most heartening for property
owners and investors, given that capital
growth and and the steadily- upward trend
of property prices are essential ingredients
of long term success.
One of the most powerful support pillars
of Australian property prices, however,
is the extraordinary lengths that owners
will go to in order to hold onto their
properties. Australian homeowners are
prepared to make many sacrifices to meet
their monthly mortgage. At the start
of the GFC, when property prices started
to fall, the response was quite noticeable.
Owners simply took their properties off
the market, and hung onto them.
The result was a decline in the availability
of homes for sale, and with the increase
in demand – think First Home Buyers – prices
stabilised, and then rose strongly for
the next 18 months. We agree with Mr Robertson’s assessment.
Our property market is strong and stable,
and even a modest reduction in prices
would see a sharp increase in the numbers
of current hopefuls who would enter the
market at once, and stabilise prices
immediately. If you would like to learn more and
discuss how McCarthy Group can assist
you, click
here.
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