Housing prices in Australia, particularly Sydney and Melbourne, have been steadily declining for 11 months after years of continuous growth. Prices are projected to drop 12% over the next four years. Foreign investment in Australian real estate has also significantly decreased due to stricter lending standards. Some analysts warn this could be the start of a housing market bubble bursting, similar to what occurred in the US in 2008, which would cause a nationwide financial crisis.
Is Australia's Housing Market in a Bursting Bubble
1. Price Drops: Is the
Australian Housing Market
in a Bursting Bubble?
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2. Many investors are already familiar with the damage caused by the bursting of America’s housing bubble –
investors lost trillions in equity, and there were high foreclosure activities.
But what is a housing bubble? A housing bubble is when house prices surge continuously as a result of
increasing demand and speculation. At some point, however, demand decreases while supply increases,
which may lead to plummeting house prices or the bubble bursting. This situation is exactly what
property investors in Australia fear today.
In 2017, Sydney, along with Hong Kong, Stockholm and Munich, was among the global financial centres at
risk of housing bubbles, the 2017 UBS findings revealed. Toronto topped the list. The real house prices of
these business centres increased to an average of almost 50 per cent from 2011 to 2017. In comparison,
in financial districts outside of bubble-risk zones, prices climbed only by 15 per cent.
Recently, however, housing prices have begun to drop in Australian urban centres – and the scene,
experts say, looks like a duplicate of the 2008 housing burst in the US.
3. Sliding Housing Prices
After six years of continuous growth, housing prices in Australia are falling. Economists predict this will
be the ‘longest and deepest’ housing downturn in the country’s modern history. Over the next four years,
housing prices are projected to drop by 12 per cent.
As of September, housing prices across the board have dropped for 11 consecutive months. In Sydney,
prices are down by 5.6 per cent and 2 per cent in Melbourne. Although not considered a crash, these
figures may confirm the fears of analysts and investors: prices are dropping, but where are the buyers?
4. Losing Foreign Investors
The foreign real estate investment boom in Australia looks like it’s coming to an end. Foreign buyers are
the key investors in the Australian housing market. However, last financial year, foreign approvals to
purchase an Aussie property declined by two-thirds. According to the Foreign Investment Review Board’s
annual report, the value of residential property approvals in 2015-16 was at $72 billion; in 2016-17, it was
just at $25 billion.
The drop in foreign property investments, economists believe, is largely driven by stricter lending
standards. For instance, banks are required to make a more rigorous investigation on a borrower’s income
and expenses. This practice led to a surge in rejected home loan applications, including foreign and local
investors.
Is this a repeat performance of the 2008 US housing bust? Economists and analysts hope not. They are
currently watching the market very closely because if the bubble does burst, it will set in motion a
nationwide financial crisis.