Australian house prices 'are sustainable'

Friday 28 September 2012

Article by Mozo

Australian house prices are sustainable, according to property expert David Bassanese of the Financial Review, who believes speculation that prices are artificially high has been exaggerated.

Australian house prices 'are sustainable'

There has been a cloud of pessimism over the real estate sector in Australia, with home loan rates increasing significantly, experts have questioned whether this trend is sustainable. The relatively high dependence on foreign funding is also frequently raised, which some believe leaves the banking sector vulnerable.

However, Mr Bassanese said: "I’ve covered the housing question many times in this newspaper, and my view remains the same: house prices are not nearly as overvalued as some suggest." Supporting his judgement are long-term measures of mortgage affordability, which have been broadly stable over recent decades and are a telling sign of house price stability.

The chief concern of spectators is that house prices are rising relative to income. But this is better interpreted as representing the country's capacity to bid more for properties because of the structural decline in interest rates over this period.

Additionally, when properly measured, property prices relative to income are not actually all that disproportionate. Looking deeper into household debt, it would seem that a large chunk of this is held by those on high incomes with decent levels of housing equity.

There is still room for house price increases in Australia, indeed, that could be the underestimation of the year. Mr Bassanese recently documented that nationwide house prices could rise by around ten to 15 per cent over the next year or so if the Reserve Bank of Australia is required to cut interest rates aggressively as the mining boom winds down, which is likely.

This turns heads to the banks, who are potentially vulnerable if house prices fall and loan defaults mount. But a good deal of work has been done in this area, and preparedness will likely offset any potential problems.

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