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?”

‘Unsustainable’ property boom unlikely to crash economy

Lucy Dean

Last Updated: 26 October 2017 Published: 29 August 2017