A number of commentators and pundits, including, John Fraser from treasury and Greg Medcraft from ASIC believe we are in a property bubble. Jonathon Shapiro from the SMH ( a good finance journalist) covers this in his piece:
If the long term average of house price is supposedly 4x income (so if the income is $100, the house price is $400), then given the rally in interest rates, I don't think we have a bubble.
If you borrowed 80% of $400 (i.e. $320) from the bank when rates were at 8% to buy the house, your annual payments would be $28.42.
With rates at 4%, your $28.42 annual payment will now buy you a house $614. So the price/income is now 6.14x.....well above the 4x average but you aren't paying any more each month. If it gets much above 6.14x, then you can say we are in a bubble, but at 5.7 x in Sydney its just the affect of lower rates, so there is no bubble yetand the pollies should stop worrying until rates go up and the opposite can happen!
