Housing Boom set to Wane: Economist

Wednesday, May 20th, 2015
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As fears grow of a bubble in Sydney’s soaring housing market, one economist says there are already signs demand for residential property is starting to wane.

UBS Australia chief economist Scott Haslem says Sydney’s record high auction clearing rates and the rapid price growth in the past three years meant the market could be considered to be in a bubble.

“The Sydney housing market does have some aspects that are bubble-like,” he said.

“The price growth and the level of auction clearing rates are consistent with periods like that.”

But he expects the market to cool down in the near future, noting that property vacancy rates were moving higher, while national housing turnover had decreased in the past month, despite historically low interest rates.

And he said property prices had risen much faster than rents, making the market less attractive to new investors.

“I think the forward indicators are telling you that we are starting to see some easing of that pressure,” he said.

His comments follow a warning by Australian Securities and Investments Commission boss Greg Medcraft that Sydney and Melbourne’s property markets may already be in a bubble.

Sydney home prices have risen more than 14 per cent in the past 12 months, according to research from CoreLogic RP Data, and the city’s median house price is expected to pass $1 million by the end of 2015.

The surge in prices has been fuelled by low interest rates, with the Reserve Bank cutting its cash rate from 4.75 per cent to a record low of two per cent in the space of three and a half years.

Mr Haslem said some people buying into into the housing market now could find themselves in financial trouble once the RBA starts lifting rates again.

But he said that was unlikely to cause any bigger problems for the country’s financial system because official figures showed most homeowners were well ahead on their mortgage repayments.

“I think its difficult to build a recessionary scenario on the back of house price movements,” he said.

“But clearly there will be some people who have come into the housing sector at the end point who are not in that position and may struggle a bit if interest rates rise.”

By Evan Schwarten
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