Last month some murmurs started about the potential emergence of a housing bubble in some parts of Australia. In recent weeks there has been a lot of talk, including on Business Insider, about why this is not the case.
We’ve been in the camp saying that there is no housing bubble when you strip away the moves in Melbourne, and particularly Sydney prices, which haven’t moved in years. What you get is pent up demand rising to the surface.
The fear comes from an expectation that the housing cycles of the past will be once again replicated in the current environment. That is, the rise in prices will lead to fear of missing out which then causes buyers to compete for properties by out bidding each other — and gazumping in the states where this is still allowed — in a pattern that sees prices spiral out of control and buyers, frankly, lose their heads.
It is fear well-grounded in Australian property price history but one that many beyond us – like the ANZ Head of Australian Operations, Phil Chronican and RBA Assistant Governor Malcolm Edey have been questioning.
So while the words “this time it’s different” are the scariest four words in economic commentary and forecasting, the reality might be that this time it just might really be different.
Take the response to the question of “whether this is a good time to buy a dwelling” in the Westpac – Melbourne Institute Consumer Sentiment for October released today.
Westpac noted that:
There was a shock around assessments of ‘whether now is a good time to buy a dwelling’. That index fell by 10.3%…
In short, many people out there think this is a really bad time to buy a house.
In NSW the decline was a huge 22.5% – which Business Insider understands was the biggest fall since 2003 when the RBA actively to take the air out of rapidly rising Sydney house prices at the time. RBA monetary policy that year actively targeted a rapid ballooning in household credit, and they also applied some heavy jawboning, talking about the concern about the credit growth and increases in interest rates.
In the Westpac survey on the same question Queensland was 11% lower as price increases have bitten into expectations and intentions. As Westpac Chief Economist Bill Evans noted in his release this morning these big falls suggest that “deteriorating affordability and warnings by some commentators of the potential for a price bubble may be driving the shift in sentiment.”
Taking this one step further this result and what it implies about the level of “property mania”, of lack thereof, in the suburbs of Sydney and other capitals is that Australian home owners have learnt lessons in the Global Financial Crisis about debt and are unwilling to further leverage their household balance sheet without due consideration.
The sentiment survey is just another piece in the puzzle that suggests the current surge in prices is coming from a narrowly focused cabal of SMSF and other investment buyers.
In the broader population there is a reticence that should keep the demand from spiralling into a more widespread upward move in property prices, and attendant demand for debt.
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