Is the “Bubble” going to burst?

There has been plenty written in the press recently about the property market being a bubble that is about to burst. I guess bad news sells newspapers much better than good news or levelheaded commentary!!

I recently read an excellent article in the Melbourne Herald Sun by Beveridge, related to this topic. There are plenty of international skeptics around as well as a prominent Sydney Academic who are very keen to point out that rental yields are too low & that property prices are too low to sustain. They argue that sooner or later buyers will dry up and sellers will need to drop their prices to the point where property is again “affordable”. Whilst things are not looking good in South East QLD at the moment, there are no “logical” reasons why the rest of Australia won’t continue to flourish in the medium & long term.

Low unemployment, rising incomes and a housing construction industry that is struggling along well behind the population growth will all contribute to underpinning the stability if housing prices. The gap between how many we are building and how many we need to build is a cumulative one and this massive under supply and over demand will be with us for many years.

Other reasons why the “bubble” won’t burst include –

Whilst property in Australia is expensive on a world scale, that is partly due to the larger size of apartments and the higher quality of construction & renovation now.

The number of mortgages in arrears continues to remain low at less than 1%. You may recall that one of the triggers to the GFC was the record number of arrears and therefore foreclosures in the US. This trend isn’t happening here.

Australians in general are wise people who have learned from the GFC. On average most are either ahead on their mortgage repayments, or are very good savers or both which creates an excellent buffer against hard times.

So, even though the top end of the market in most areas (generally the most volatile portion of the market anyway) has softened, the middle of the market where most of us buy is at worst flattening out. However, over the medium & long term, this sector of the market will continue to increase in value at the average rate that it always has to the point of doubling in value every 7 – 10 years. Now that’s a great investment when you also consider that this appreciating asset is also paying you a passive income.

If you require further information please do not hesitate to contact Mark Powers on 0402 577 580 or markp@financementors.com.au.

Mark Powers
Finance Specialist
m. 0402 577 580
markp@financementors.com.au