australia's great housing bubble

An asset bubble is an overpriced market that's been pumped up with credit.

Both Australia and Canada have seen a massive housing boom fueled by a sea of debt. While other markets around the world have experienced sharp corrections over recent years, Australian and Canadian prices are at an all-time high.

Australia sits near the top of the list of most overvalued housing markets worldwide. Sydney and Melbourne, after only HK and Vancouver, ave the most severely unaffordable housing markets in the world, according to the Demographia International Housing Affordability Survey.

House prices in Australia have reached levels that are double to triple their historic ratio to household incomes. And Australian households have the world’s highest debt to disposable income ratio.

So yes, Australian house prices are in a bubble. And every bubble throughout history has burst. So the only debate is when the bubble will burst, not if.

Being an illiquid investment that takes time to sell, it would be prudent for investors not to overstretch by taking on to much mortgage debt at this time. For those already highly geared in investment property it would be a prudent time to sell, while there are still keen buyers, pay down debt and cash up for future opportunities.

For those living in their own home and with secure income there is little for them to worry about. My greatest concern is for those young FHBs who have been buying a house near these record high prices on high leverage (LVRs). They, and their co-guarantors, are highly vulnerable to losing everything.