The media is rife with speculation about Australia’s property market, with some experts warning that the nation is in the midst of a property bubble and others dismissing such claims.
But what exactly is a property bubble, and what are the warning signs to look out for?
The anatomy of a property bubble
To determine whether or not the country is in the midst of a property bubble, it’s important to understand what a property bubble is.
According to Tim Godden, national director at buyer’s agent service Seekology, “A housing bubble refers to a period of above-average growth in property prices, which is fueled by high property demand and speculation in the market. Within our major property markets, demand is far outweighing supply, causing property prices to increase dramatically. Due to this, the Australian property market has been categorised as being in a bubble.”
Pundits are debating whether or not it’s appropriate to label an entire nation’s property market as being in the middle of a bubble. After all, market conditions in Sydney and Melbourne can be very different from those in the nation’s regional and rural areas. “The Australian property market is very diverse and to say the entire country is in a property bubble would be a large generalisation,” Godden said.
Speculation is also rife on whether Australia’s housing market has peaked and if a correction is imminent. Once again, pundits warn that such statements are too broad to apply to the whole nation as many competing factors influence housing prices around the country.
Warning signs the bubble is about to burst
Ben Everingham, from buyer’s agency Pumped on Property, lists three factors that could indicate a property bubble is about to burst:
- Low interest rates
- Excessive borrowing
- Oversupply in capital cities of inner-city apartments
A property bubble may eventually burst due to an oversaturation of the housing market and because housing prices are overvalued. In terms of supply and demand, the property bubble will not burst until demand declines – and current demand is strong for properties that possess some degree of rarity.
“At this stage in the cycle, research is important and with the right property selection in a great location, an investor will always receive great capital gains,” said Godden.
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