Despite the fact that financial markets around the globe are struggling and housing markets have literally crashed in many countries including the United States, Britain and Spain, the Australian housing market has actually faired quite well over the last few years. Recent indicators however, point to possible trouble in the near future.
What's been happening so far?
Since 2006 the Australian housing market has seen enormous growth.
According to data from the official Australian Bureau of Statistics, the Australian housing market has actually grown by 41% in just four years. While many economists believe that this rise in housing prices is justified, there are others who believe that Australian housing prices have gotten out of control and are actually artificially inflated. Regardless of what the analysts think, new data shows that Australian home prices peaked in 2009 and the market is now beginning to slow. During the month of August, the adjusted housing increase was just .2% and sales of new homes dropped 2.6% during the same month. While this worries some analysts, it is important to point out that housing has still gone up 8% overall for the year and analysts are still predicting that housing will increase by as much as 10% by year’s end. Still, some are worried.
For the past several months investors have been airing on the side of caution, while at the same time banks and some analysts have been virtually ignoring the situation and downplaying it.
Current statistics also show that as many as 60% of the loan books in Australian banks are tied directly to residential properties. This has made many experts even more wary of a potential housing market collapse.
Could we be on the brink of housing bubble?
''A housing bubble is the one overhang of the Australian economy, with proponents arguing that with Australian banks having 60 per cent of their loan books secured by residential property, the entire Australian economy is very highly leveraged to a domestic asset bubble,'' said David Barrett-Lennard, the CMC Markets institutional equities dealer.
Concerns that the Australian housing market might take a nose dive have prompted Fitch Ratings, a global rating agency to conduct stress tests on Australian banks and mortgage agencies. The test, scheduled to take place soon will look at the potential effects of a drop in housing prices and a rise in mortgage defaults. More specifically the study will look at what the implications of such a scenario would mean to the Australian housing market.
What does the near future hold for the housing market?
“Over the last few months, Fitch has received numerous enquiries as to the sustainability of Australian residential property prices and the possible impacts of a correction,” Ben McCarthy, managing director for Australia, said in a statement. “While over the short-to-medium term, a downturn is not Fitch’s central expectation, the agency is performing its stress test exercise on ratings impact under the hypothesis of an imminent housing market correction.”
Fitch Ratings, even though they are running the tests are not overly concerned about the outcomes. The company has stated that the chance of a housing market down turn is actually quite low. In fact, Fitch’s senior director Natasha Vojvodic said, "We're not taking a view as to any one of our situations will actually occur.” She went on to say, "Instead, we're responding to what we see as regular reports and interest for investors about the strength of the market, and we are interested in seeing what will happen if any one of these situations actually occurred."
Initial results of the stress tests are due to be released sometime in November. Fitch hopes to have full reports available by year’s end or at the latest January of 2011.Next » How to Buy Property that has Been Repossessed in Australia
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