This Doesn't Feel Like A Property Bubble Because People Aren't Acting Crazy

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There’s been some concern that a house price bubble is brewing in Australia.

Auction clearance rates are high, mortgage rates are low and pretty much everyone is expecting unemployment figures to rise.

Earlier this week, real estate tycoon John McGrath warned that the property market was growing at a rate that was too high to be sustainable.

AMP chief economist Shane Oliver notes today that although the scenario could turn into a house price bubble, “at this stage, the market is a long way from that”:

There is no sign of the irrational exuberance that normally goes with bubbles – auction volumes are lowish, there is no media frenzy around property sales and investing, there is little sign of buyers rushing in for fear of missing out, there is no sign of buyers extrapolating past price gains as a reason to buy and investor interest is modest with 5.7% growth in investor housing credit over the last year compared to 25% to 30% growth a decade ago.

In large part this reflects a more cautious approach on the part of home buyers since the GFC – Australians have become fearful of taking on more debt not helped by relatively high job insecurity and the realisation that house prices can go down as well as up.

Australia needs the property market to grow sustainably as the RBA tries to guide it through the end of the mining boom.

The RBA has been cutting rates in hopes of boosting non-mining industries like construction, manufacturing and retail. A property bubble would limit its ability to keep rates down.

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