Michael Grochowski – No Bubble in Australian Housing Market

Despite persistent commentary to the contrary, there is no evidence of a housing price bubble in Australia, and the housing market, particularly in Melbourne, continues to improve and grow.

Talk of a housing price bubble goes back a long way, even before the global financial crisis (GFC).  Commentator Michael Schlesinger, writing in propertyobserver.com.au, quotes Commonwealth Bank chief economist Michael Blythe as saying the Australian housing market has come through the “ultimate test” of the GFC and has survived in relatively good shape.

“That’s the best indication that we’ve not got a genuine bubble as we know them from historical experience,” said Blythe speaking as part of a panel discussion at the recent Australian Banking and Finance Mortgage Innovation Forum in Sydney. “As an economist, I have to believe in the laws of supply and demand, and supply and demand in the Australian housing market is in a position to at least keep a floor under prices.” he said.

“It’s been a persistent theme and a persistent question we get from clients, particularly those from offshore,” he said.

With the GFC now more than three years behind us, there is also clear evidence that the Melbourne housing market is showing signs of increased buyer activity with clearance rates up on last year and home loans on the rise.

Following a generally subdued 2011, ABS data is reported to have shown that the number of housing loans in January was a healthy ten percent higher than for January last year.  The Age, on March 23, 2012 reported that the mid-prestige housing market has been particularly active with a number of 2 million dollar plus sales.  Generally buyer confidence is up, despite negative media coverage of poorly performing Victorian economy and mortgage rate rises recently by the banks.

Early momentum is certainly gathering this year as buyers are seeking and apparently finding good value in quality properties in prestige locations.  The Age article notes that Melbourne particularly, has a history of generating upward moving prices among aspirational buyers despite the nature of the prevailing economic fundamentals.

For owner-occupier home buyers and well as for property investors, the Melbourne property market is consistently demonstrating a strength and resilience in the face of uncertainty and changeable short term economic conditions.

Michael Grochowski