It’s the question that Australian homeowners and buyers have been asking and industry experts & commentators across the country have been debating: is Australia in a housing “bubble”?
With many opinions and insights circulating, here’s the latest from the markets.
A cause for concern
Whilst it’s no surprise that Sydney property markets continue to be closely watched as house prices remain on an upwards trajectory, Melbourne markets are also under scrutiny.
The Australian Securities and Investments Commission’s (ASIC) chairman Greg Medcraft told ABC’s The World Today programme: “I think that the Sydney and the Melbourne markets are very hot. If you look at the average price to income ratio, it is very high.”
In May, following the RBA’s second rate cut for 2015, Mr. Medcraft was the first of the regulating bodies to publicly use the term “bubble”. Mr. Medcraft said that borrowers could be burned when interest rates eventually rise or if unemployment rates increase.
He went on to say that average price to income ratios is a critical factor in residential housing. He said rates will rise again in the future which is why the banks use a rate of 7 per cent to calculate their debt servicing.
A spotlight on lending
A concern associated with record low interest rates is that borrowers could be tempted to borrow more money while interest rates are so low.
The Australian Prudential Regulation Authority (APRA) chairman, Wayne Byres addressed the Customer Owned Banking Association in May. After the RBA cash rate reduction, Mr. Byres reinforced the intention of APRA to tighten lending standards, with a particular focus on slowing growth in the investor housing market as well as reducing how much a borrower is able to borrow.
Before rates rise, they could fall further
Following the May rate cut, RBA deputy governor, Dr. Philip Lowe addressed a Corporate Finance Forum event in Sydney saying: “We still have scope to lower interest rates if we need to. That doesn’t mean we’re going to, but we have scope to do that. Nothing has changed in that dimension.”
For more information on how this may be affecting your current situation or future investment goals, please call (07) 4613 0311 to speak with Accession3 Brokers Steve or Nick.
Author: Steve Pram