In an important intervention into the rampant Sydney and Melbourne property markets, ASIC chairman Greg Medcraft has warned buyers that they might be in a bubble and not realise it.
“History shows that people don’t know when they are in a bubble until it’s over,” Medcraft told the AFR this morning.
Here’s a chart Pete Wargent tweeted out last week that shows the kind of rise Medcraft is worried about:
Medcraft added the specific warning that he is “quite worried” about Sydney and Melbourne prices, saying that with the current house price to average income ratio at an all-time high and rates at an all time low, risk was rising for buyers.
He said that while rates are at historic lows, they won’t stay there and he cautioned borrowers who are taking on too much debt which they won’t be able to afford once rates start to rise again.
Medcraft’s comments follow a speech last week from APRA chairman Wayne Byers which found that there were some questionable lending practices being undertaken in Australian banking.
Taken together, it’s clear that with Medcraft warning buyers about taking on too much debt and APRA warning banks about lending too much to borrowers unprepared for a rise in interest rates, Australia’s regulators are seriously concerned about the chances the “bubble” will burst.