Is there a property bubble?

The property markets in Sydney and Melbourne are experiencing softer growth in 2016 with Sydney’s market growth predicted to rise at 2.2% and Melbourne to maintain a higher growth rate of 7%. The softer growth is a reflection of the slower growth in household incomes – the slowest rate in 18 years – and the lower likelihood of people to buy as a result. When compared against countries like Spain and the US which have experienced economic and property crises in previous years, it is little wonder people question whether we are in a property bubble.

The good news is that all signs point to this concern being premature. There are several trends which indicate that Australia’s property market is healthier than many think. Here are the reasons why.

Not all Australian property markets are softening

Australia is not one consistent property market, but rather a series of sub markets. While Sydney and Melbourne markets are softening, other locations are experiencing growth. For example, the Brisbane market continues to perform well.


Source: “Onwards and upwards or down and out? Where to from here?”, CoreLogic RP Data, 2015.

Home loan repayments remain affordable

Although the growth in household incomes is currently low, trends have indicated that home loan repayments are in fact much more affordable than they have been in previous years. Matthew Hassan, Westpac’s senior economist has said that the burden on interest payments on mortgages is not really high, but there is a sensitivity for future interest rates.



This graph indicates that the ratio of interest payments to household incomes has actually been on a downwards trend for the past 4 to 5 years. With growth in wages slowing, lower interest rates help counteract lower incomes. This means wider affordability of home loans and a healthy demand for property.

The prevalence of mortgage buffers amongst Australian home owners is another indicator which offsets the notion that our property market is a bubble about to burst. According to the RBA, the amount of Australian households paying off their home loans ahead of schedule is high compared with many other countries. Aggregate mortgage buffers are currently on the rise in Australia. Although this might be indicative of lower interest rates with borrowers not reducing their repayment amount throughout the course of their loan, it still means that owners can afford their repayments and are continuing to pay off their mortgages early.

Credit isn’t rapidly rising

One major indicator that we might be in a property bubble is a rapid rise in credit. If we were to witness a rapid increase to credit growth, it would be a cause for concern for the property market and Australian economy. Although credit rates have been on a slight upwards trend since 2009, they remain fairly steady and growth is much lower than previous peaks.



Despite popular debate that Australia’s property market is a bubble about to burst, the economic signs should curtail fears of an impending market crash.

To discuss your property investment goals, contact me on 02-9522-3000 today.




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