I am often amused when I read sensationalist articles from attention seeking provocateurs forewarning all and sundry about the impending doom of the Australian property market.
The easiest "go to" phrase they use is the worn out property "bubble" which is about to burst.
Let's deal with the reasons why I don't think we are experiencing this type of phenomenon, the likes of which we really truly haven't seen since the days of the very early 1990’s when rates where we'll into the double digits prices dropped in some cases by nearly 50% in less than 3 years and our esteemed Treasurer was declaring the country a Banana Republic.
First of all the growth seen in the property market in the past 2-3 years has been very fractured. What I mean by this is whilst vendors in Sydney and Melbourne have been reaping the benefits of record Auction clearance rates and annual price rises of well over 10% the same cannot be said across their respective states and neighbours. Go ask an Agent in Brisbane, Adelaide, Perth, Darwin, Wollongong, Byron Bay if they are experiencing the same type of sales activity as here and they will give a very sobering response.
Secondly, the Sydney market is playing catch up with the others. You see whilst we've been making hay whilst the sun shines it wasn't always the case. In fact the median price growth of Sydney property over the past ten years is barely more than 3% - hardly the stuff of bubbles and well below such star performers as Darwin.
Thirdly, unlike other global cities we are consistently compared to as the most expensive we have some very real differences. The most obvious one is that our major cities are grossly under supplied with new dwellings. Once again Sydney is the perfect example with the entire city having 10,000 less properties for sale than its much smaller brother Melbourne and the same amount as the much smaller Brisbane. Is it any wonder that Sydney prices have risen so much when you see such a huge imbalance between supply and demand?
Finally, when the whole world was imploding financially in 2008 Australia was one of the few countries who had a strong enough banking industry with a very rigid Prudential Authority to not only survive but then prosper. Consider this, if you were to buy a property in Britain today you could easily walk into a bank and get a home loan with an interest rate below 3% even lower in the US. Our Big Four Banks are rated amongst the top ten in the entire world.
And those who predict price slumps of more than 30% once the party ends fail to realise one simple fact - owners only sell if they really have to sell. The main reasons I see in my market place that fit this bill are divorce, death and financial. Apart from these three the owners who list and don't like the prices on offer will simply withdraw their home from sale until the conditions improve. The last time the market peak was reached in 2003 I could count on one hand the number of homes I had withdrawn from the market in that year. When things well and truly corrected in 2004 I had 32 - that's right 32 withdrawals in one calendar year.
When you read how far ahead of mortgage repayments the average home loan owner is I find it very hard to foresee a situation where a large number of them will be forced into selling for drastically reduced prices. They will simply not engage in the market.
The unfortunate reality is that there is no bubble at all, but my article is far more boring than the one espousing it. What's that old saying, never let the facts get in the way...