Is The Australian Housing Market Over Valued? Many Say Yes!
If you think that the housing market in Australia is overvalued, you are not alone. In fact, just last month The Economist reported that home prices across Australia were as much or even more than 50% inflated. Even with the slight slump seen in the housing market during the past year or so that was not enough to shake Australia from the top spot. According to the report they are still beating out other countries like Sweden and France when it comes to overvalued home prices.
Australia Housing Market Has Risen Steadily
While other markets around the world, including the US have seen home prices plummet, many parts of Australia have seen amazing gains since 2008. Across eight of the country’s capital cities home prices are up 15% since the beginning of 2008 with Sydney reporting a 16% gain and Melbourne a 23% gain.
“We have a very overvalued housing market and even a small adverse shock can be magnified by a large adverse impact on property values,” said Gerard Minack, Sydney-based global developed markets strategist at Morgan Stanley (MS). Minack has said he believes home prices are up to 40% over valued.
Australia’s economy is robust and unemployment is low. This combination has helped to keep housing costs across the country at a premium. In the upcoming months, while prices may fall slightly there are no indicators that predict a housing market collapse.
Australia Gold Coast Seeing Prices Drop
There is one area where home values have actually dropped and that is the Gold Coast. The luxury coastal areas have seen prices recess slightly. In Noosa Heads for example, prices have come down by about by about 1/5th during the same time that prices have risen throughout the rest of the country. Additionally, North of Brisbane and Queensland’s sunshine coast areas have also slumped slightly. Higher inventory seems to be one contributing factor.
Looking Ahead To The Future
Will the housing market continue to flourish or will it start to even out? This is the question many Australian’s are asking, especially hopeful first time home buyers. Prices have risen in many areas so sharply that new buyers have been priced right out of the market. In fact, many potential first time homebuyers across the country are striking, saying they won’t buy until housing comes back to being more affordable.
Additionally, interest rates are expected to rise again later this year, maybe even twice. This should also help to slow down the housing market to more reflect current economic conditions.
So, Is The Market overvalued?
Most say yes and in fact 63% of Australians surveyed by QBE Insurance Group Ltd reported that they believe the market is definitely over valued. The survey also asked home owners how a rise in the interest rate would affect them. Just over 10% said that if rates rose by just .25% that they would struggle to make their mortgage payment and almost one quarter said that a .50% increase would mean that they would not be able to make their payment either. It is expected that some type of interest rate hike is in the works for later this year.
In conclusion, more than half of the country does believe that the Australian housing market is overvalued. At the same time however, that could soon be changing. As already pointed out some areas have started to fall slightly and with rising mortgage costs and first time homebuyers unable and unwilling to pay current market prices, indicators show that a slowdown might be is in sight.