Despite being “unsustainable”, the boom in east coast house prices is unlikely to result in a “cataclysmic crash” that would savage the national economy.
According to CoreLogic’s director of research, Tim Lawless, Australia’s current level of household debt is “quite extraordinary”.
“When you see values rising at a remarkably faster pace than household income growth over the same period of time, I think that’s probably the definition of unsustainable,” he said.
“[But] are we going to see a cataclysmic crash in the housing market? We’re not of that belief either.”
Mr Lawless pointed to similar cycles in the 2000-03 periods in Sydney and Melbourne. Following those “very long and sustained cycles”, Sydney saw a “fairly sustained downturn” for two-and-a-half years and did not exhibit a nominal pick up (without adjusting for inflation) until 2009.
“The market did take a long time to recover. Sure, there [are] some big differences now; household debt is quite extraordinary compared to where it was back in 2004, [and] interest rates are substantially lower,” he said.
“We still have our ... view that we wouldn’t see a substantial decline, say a 20 per cent-plus decline in property values, unless we saw [that] either labour force has become very problematic with rising unemployment, more so than what anybody would’ve expected, [or] we see … some sort of a monetary shock or a finance shock which does force up mortgage rates.
“I think that’s probably [at] the back of the RBA’s mind. How do we deal with a household sector that’s very indebted without pushing rates up high that’s going to stifle consumption?”