Market Watch: Home building at 20-year high

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HIA announces 20 year-record high for home building
This year will set a new record for home starts according to Australia’s housing construction trade body. The Housing Industry Association’s National Outlook for spring 2014 shows that an aggregate 190,000 new dwellings will have commenced this year; the previous record of 187,000 was set in 1994. As well as helping to address the issue of undersupply in the market, the boom in construction has added jobs and other benefits to the wider economy.

HIA chief economist Harley Dale says: “Record low borrowing costs have combined with other factors such as high net overseas migration to unleash substantial pent-up demand for new housing. These factors will keep the level of new homes commenced at historically elevated levels.” However he warns that without regulatory reforms the sector will deliver less than it could otherwise achieve. Renovations have not grown at the rate the HIA would like to see but there is an upward trend on the horizon.

European academic warns that Australia has “world’s biggest property bubble”
A European professor has warned that the world could be gearing up for a real estate crash and says that Australia has the biggest property bubble in the world. Speaking at an event in Singapore, Professor Arturo Bris of the World Competitiveness Centre warned that excess wealth was causing people to pay over-the-top prices for real estate. He believes that in April next year there could be a financial crisis which would result in a property market crash. Professor Bris is basing his forecast on historic data which shows 58 months of global economic growth followed by 11 months of free fall.

Sydney auction clearance rates fall for a third weekend
The Sydney property auction clearance rate dropped back for the third week in a row this past weekend. At 73.5 per cent it was the lowest rate for four months due to a high level of properties available while the market begins to slowdown towards the end of the year.

Banks may not be prepared for housing market downturn
The head of one of Australia’s largest investment businesses is warning that the big banks may not be fully prepared for any downturn in the housing market. Jeff Brunton from ADP Capital Markets says that the stress tests that have been carried out on the country’s big lenders have not included mortgages that do not default. A market crash would result in a high number of owners in negative equity with the lenders being saddled with a high loan-to-value ratio. The stress test of the banks has concluded that lenders would have enough capital to cope with defaulted mortgages.


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