Will Australian property prices continue to rise?
Proeprty prices in Australia rose by 175% over the 17 years from 1990 to 2007. And despite a small wobble during the GFC, they have since climbed by a further 60% to leave them 350% higher than in 1990.
Will our property bull market continue to surge?
Property lecturer and author of Top Australian Suburbs and Property vs Shares
There are two main reasons I am confident property prices will continue to rise.
First, when I am forecasting, I look at what has happened in the past. In the modern history of Australian residential property, there has never been a national crash. Sure, some sections of the market have succumbed to price drops, but never has there been a national residential property crash.
Apartments have had their fair share of ups and downs (more down than up) but your typical suburban home has continued to be a safe and secure investment.
Second, if you recall your basic economics, price is a function of demand and supply. According to some property groups, there is a shortage of houses. However, what is of more importance is the demand.
Providing Australians continue to pursue the dream of owning their own home, the banks are willing to lend money to buyers and we can afford to pay back the banks, property prices will continue to rise.
"By how much?" I hear you ask. This is a tough question as the level of price increases depends on many factors. However, I am confident that prices will be higher this time next year, and the year after that, and the year after that. National prices should rise by at least 50% in the next 10 years.
"Where should I buy?" I also hear you ask. This is a much easier question.
In the short term, I wouldn't buy investment property in Sydney or Melbourne as there have been significant price rises recently in both markets. You should consider other locations such as Adelaide or Brisbane, where demand is building. If you are looking to make gains in the long term, you should ensure that you buy the right type of property (established, not new) in the right location (close to the CBD or the water). Property prices will fall? Tell 'em they're dreaming!
Chief Australia & New Zealand economist, Capital Economics
A US-style collapse in house prices in Australia is unlikely as lending conditions during the good times have not been as loose as in America and as Australian banks are better placed to cope during the bad times. Even so, after hardly rising at all over the next couple of years, house prices will fall outright in both 2019 and 2020.
The 30% fall in prices in the US during the GFC was a big wake-up call to those who believe that "property will only ever go up". On some measures, the Australian market looks even more vulnerable. The 350% rise in prices since 1990 eclipses the 140% rise in the US before its bubble burst. Relative to incomes, housing in Australia looks as overvalued as it was at the peak in the US.
Thankfully, the extent of the excess in Australia isn't as large because lending standards aren't as loose. Just 9% of loans are being issued to borrowers with a deposit of less than 10% compared with a peak of 29% in the US. And the 2% share of outstanding mortgages that are akin to sub-prime loans is tiny compared with the high of 14% in the US.
But the Australian market is still vulnerable. Given how far prices have risen relative to disposable incomes, some fall appears inevitable. The catalyst will probably be a rise in interest rates, although that won't happen until 2018 at the earliest.
The high level of debt means that repayments are already absorbing a large share of income even though interest rates are at a record low. When rates rise, that burden will grow. The 40% of borrowers with interest-only loans are particularly vulnerable as they have yet to repay any principal.
National house prices are unlikely to rise much over the next few years and, if interest rates rise in 2018, prices may fall by about 10% over 2019 and 2020. That would be a pretty benign result given how far they have risen in recent years.