Banking on employment Florence Chong From: The Australian November 27, 2010 12:00AM Increase Text Size Decrease Text Size Print Email Share
The NAB says there is no housing bubble, but residential housing prices are moving "sideways" with a 5 per cent rise forecast next year. Source: The Australian
AUSTRALIAN housing prices are unlikely to collapse and there is no bubble, according to leading economist Alan Oster.
Oster, National Australia Bank's global chief economist, says the unemployment rate would have to rise to between 8 per cent and 8.5 per cent before there would be a collapse in house prices. (It was 5.4 per cent in October.)
If unemployment spiked, prices could drop 20 to 30 per cent, he says.
The debate over whether Australia has a housing bubble, and the likelihood of it bursting, has intensified as interest rates rise.
Last week The Weekend Australian reported that a senior Treasury official had sounded the alarm over Australia's property market, warning the prospect of a sudden and dramatic drop in prices was "the elephant in the room" and should not be ignored by the federal government.
RELATED COVERAGE RBA rate rise lies in the balance The Australian, 4 Oct 2010 Drop in orders to stave off rate rise The Australian, 14 Sep 2010 Confidence slips as rates rise Herald Sun, 10 May 2010 Office outlook glowing Herald Sun, 22 Apr 2010 Household debt rises as mortgages grow Adelaide Now, 19 Apr 2010
Oster says the biggest housing-market issue is debt.
In the past 30 years, Australians have been borrowing more to buy a home. Our comparatively high residential prices reflect lower interest rates, low inflation and greater borrowing ability. "Australians love their housing and they will borrow to buy a home," he says.
The increased debt-servicing ability has seen debt levels as a percentage of income move from around 20 to 30 per cent 30 years ago to 180 per cent today, on a national level, based on "stock" debt as against household income.
Even at that level, he says the servicing ratio (debt repayments as a percentage of income) is still reasonable provided incomes are maintained.
As 90 per cent of housing loans are taken out on variable rates, Oster says interest rates are a critical issue. The bank's view is rates could rise by another half a percentage point starting from early next year. Residential prices are moving "sideways" with a 5 per cent rise forecast next year. Prices in Sydney have not
risen "for ages", he notes, describing the housing markets as patchy with pockets of oversupply.
"One in four apartments on the Gold Coast is vacant," he says.
The auction clearance rate is 60 to 70 per cent in most capital cities, but drops to 20 per cent in Brisbane.
Places such as Cairns have been affected by the strong dollar, which is a deterrent to overseas visitors.
Oster says the supply of new homes continues to be an issue with population growth, now 2 per cent, but under-building of around 250,000 houses means there is nearly two years worth of take-up at existing rates.
