Why you shouldn’t worry about the so-called bubble
Date Posted: Jun, 2015
The growth in the prices for Sydney property has been so pronounced that a lot of people have cried 'bubble' in the last few years. Even Greg Medcraft, chairman of the Australian Securities and Investments Commission warned of the dangers of the current housing market, saying that "people don't know they're in a housing bubble until it's over" in an interview with the Australian Financial Review.
But the thing is, we've done this before – and on a bigger scale. That's why we're going to come out of the property price rises relatively unscathed, and why you shouldn't be in a panic about the idea of buying Australian property.
That's not growth mate, this is growth
In the May 28 Property Pulse from CoreLogic RP Data, researcher Cameron Kusher laid bare the extent of current growth in Australian property compared to the previous boom between 2001 and 2004.
Right now, home values have been going up since May 2012 – they're now 38.8 per cent higher than they were at this point. But over the same time period at the turn of the millennium, they rose by 60.2 per cent. You might be forgiven for thinking that the cash rate was effectively at zero back then, but it wasn't: The lowest point it struck was 4.25 per cent, more than double what we have at the moment.
So while it's healthy to be cautious, I don't think anyone should be in a panic about whether price are going to crash. Compared to the V8 Supercar that was the early 2000's growth, we're trundling along in a beat-up Nissan Sunny.
However, it's worth noting that last time we experienced this boom, it happened across all of our capital cities. This time, the growth is concentrated in Sydney and Melbourne. The only capitals here that are currently experiencing growth anywhere near the early 2000s levels are two you might not expect – Hobart and Darwin. With value growth mostly limited to the Victorian and New South Wales capitals, it gives you a clear indicator of where to look for your next Australian investment property.
Are we already slowing down?
The Property Pulse listings data also indicates that the total number of residential properties for sale over the month to May 24 was 22.3 per cent lower than the same number a year ago. But even if stock on market is down, prices and asking rents are still rising, giving you plenty of options to profit from capital gains or positively geared property.
Don't let talk of a boom and bust scare you out of the market – we've had strong growth, and it's going to continue. That doesn't mean prices will crash. Rather, I think over the next 12 to 18 months we'll see growth slowly ease back to a more sustainable position below 10 per cent.
You'll still be able to invest with confidence, and hopefully the boys who cried bubble will be a little quieter.