There are two notable sides of the fence that people seem to sit on when it comes to this contentious topic. They argue that local property prices are over-inflated and set to come tumbling down and this could be by as much as 50 per cent. This is a full, in-depth exploration of a highly controversial topic. THE BIG PICTURE 18 Aspects of the Property Bubble: RELYING ON SHORT-TERM REPORTING 4. HOUSING IS A UNIQUE COMMODITY 5. THE QUESTION OF OVER-PRICED PROPERTY MARKETS 6. RETIRING BABY BOOMERS SELF MANAGED SUPER FUNDS SHOULD YOU BE WORRIED?

HOW LONG BETWEEN ONE PROPERTY CYCLE AND THE NEXT? Losing that focus is likely to undermine your journey and steer you off track, causing you to lose sight of your long term objectives. A housing bubble is defined by rapid rise in property prices, where house prices are a long way away from what is fundamentally considered justified and generally occur when highly leveraged speculators enter a market for short-term growth.

The problem is that property bubbles are often hard to detect in real time because there are so many different Australian property markets and there is so much disagreement over the concept of affordability and the fundamental value of properties. The fact is, most market movements are influenced by those who keep the markets moving — humans and our psychological responses to perceived highs and lows. Real estate bubbles are caused by a rapid escalation in house prices, fueled by a level of buyer demand that outweighs supply.

Something generally happens to spike buyer demand, as in the recent case of low interest rates making property relatively cheap to leverage into. Then eventually some other influence comes along to quell demand, often rising interest rates even though the supply pipeline is still pumping out newly built dwellings. They speak as though the many markets within markets across our vast continent can be wrapped up in a neat little package. Not to mention divergent communities with all sorts of infrastructure, industry and amenity variations.

Despite the underlying strong fundamentals for the Sydney property market tighter lending criteria from the banks who were forced to slow down lending to investors by APRA together with media hype of high prices moved the Sydney market from 5 th gear into 2 nd gear. The Sydney house prices recorded extraordinary price growth from toafter moving up steadily sincehowever by the end of last year that growth started to slow.

We also need to remember that the Sydney property market was mainly flat from — a decade before that recent short burst of strong growth. Respected economist Saul Eslake does not expect a property price crash, but says that forces are shifting that will dampen demand and increase supply, and that slower population growth will limit new demand.

There are also a number of current, and proposed, policies that are taking some of the heat out of the market, particularly for investors. This has resulted in banks tightening their lending criteria including requiring larger deposits and stricter interest servicing criteria. At the same time foreign property investment in Australian property has slowed a little in response to the slowdown in the Chinese economythe higher Australian dollar and China restricting the outflow of funds from that country.

I would have loved to have access to the variety of daily, weekly, monthly and quarterly market statistics that are available today. In other words, this short term reporting is far from reliable when it comes to gaining a clear perspective of enduring market fundamentals that sophisticated property investors pay attention to.

Unlike shares in a faceless corporate entity, real estate represents an emotional investment as well as a financial one. They would rather eat dog food that sell up, and as a result house prices stumbled and fell a little — but they did not crash. Clearly this is very different to what happens in the stock market or in some overseas property markets where you can hand keys back to the bank and walk away from your loan obligations.

Investors must remember the big picture rather than getting caught up in the detail…where the devil is. The problem is that any time dwelling prices show significant upward growth a run of alarmist reporting follows. Property price growth for the decade to January This includes tighter regulations around foreign investment and property related lending practices. However measuring housing affordability is such an abstract idea because it is not a one size fits all measure and there are so many factors which contribute to affordability or unaffordability.

What figure do you use for household income? Much like interest rates household incomes will fluctuate over the 25 to 30 year cycle of a mortgage. And income levels are very different across different regions of the country as is the money that flows to single vs dual income households.

In the sense that it provides shelter it is, however, tax regimes, the cost and scarcity of developable land, the provision of infrastructure and the availability of jobs are all other factors that contribute to the cost of housing. Furthermore, most comparisons are not apples with apples. Australian housing markets are dominated by detached houses whereas markets like Tokyo, Singapore, Hong Kong and Manhattan are largely apartment markets while London for example is predominately attached housing types what we would call terraces or townhouses.

The fact that Australian homes are, at least for the large part, detached and the largest in the world will also contribute to a higher cost. Most overseas analysis of our market situation is misleading due to its focus on two typical measures of affordability, being the ratio of house prices to household incomes and house prices to rents. At a little over 20 per cent, our level of new housing loan repayments as a percentage of household disposable income remains at a 30 year average and is falling due to our stable, low interest rate environment.

So the change in incomes and interest rates since imply that Aussie housing is fairly valued actually slightly cheap. This analysis is crucially predicated on interest rates staying at or below their present marks and if interest rates rise, then housing could be considered expensive; but the bond market currently implies that over the next 10 years the cash rate will only climb by about half a percentage point.

Buying your own home is an aspirational Aussie dream, representing a rite of passage that affirms our financial success and gives us a new social status. According to a report, The Evolution of Home Ownership Rates in Selected OECD Countries: Demographic and Public Policy Influenceshome ownership has various spillover effects for society as a whole.

In recent times the property sector has almost singlehandedly kept our economy moving, breathing new life into retail, infrastructure and employment due to the many industries that survive off the back of bricks and mortar. These periods are synonymous with increased public policy encouraging home ownership — think the FHOG boost during the GFC for instance.

In the s, While some suggest this declining rate of home ownership is largely due to an inability for first homebuyers to break into our over priced property market, others like industry heavyweight John McGrathnote a clear cultural shift occurring across younger generations. This led to a massive construction boom that saw our once fairly contained major cities start to expand outward in a rampant period of unprecedented urban sprawl.

This changing of the generational guards brought with it an interesting transformation in our housing markets. Where once it was all about size, home ownership has become more about convenience and lifestyle, as location takes precedence over square footage.

Many younger homebuyers are trading backyards for balconies, buying apartments and compromising on space in order to break into popular postcodes within a two to ten kilometre radius of major CBD markets across Sydney, Melbourne and Brisbane.

Tellingly, these figures reveal there were telemoney exchange rate sar to php as many building approvals for higher-density homes 9, as houses 9, Major demographic snc lavalin stock buy or sell, such as shrinking household sizes, are driving the rising demand for higher-density accommodation.

This booming buyer and tenant demand is exerting upward pressure in select locations where accommodation supply is tightly constrained, due to restricted development and residential growth opportunities.

That said, ageing will affect house prices. Second, says Guest, is older people choosing to downsize and releasing equity by selling the family home to help fund retirement. However, he adds that the latter effect has become weaker, given our ability to leverage equity without selling any assets through facilities like redraw loans and reverse mortgages. Peter Wargent also believes that Asian Capital is distorting our property markets and that it is impacting in a number of ways: Tsx stock market quotes, the flow of Chinese capital to Australia would have been reduced and so too would the related benefits, including less housing supply and fewer construction jobs.

These commentators suggest that the scapegoating of Chinese investors over high Aussie house prices can be refuted with hard evidence. Australia is on the crest of an undeniable demographic tsunamias 5. Scaremongers suggest this mass workforce exodus will send us hurtling toward a similar fate suffered by Japan, where retirees dramatically outweighed working citizens and in turn, toppled the economic balance.

Call option positive gamma curve of course less people will be actively working and contributing taxes.

So we should anticipate some type of economic fallout from this significant generational transition. But is it reasonable to expect all retirees to stop spending money and sell off any property they own, just because they decide to cease paid employment?

Both sides of politics have geared their policies to reflect the need to keep our population growing, looking at ways to increase the tax-paying workforce by importing younger workers.

This will result in extra demand all of these new citizens will place what causes a stock market bubble to burst our already scarce inner urban housing stock, as they seek accommodation what causes a stock market bubble to burst rent and purchase.

Logically, growing city-centric employment opportunities, combined with more skilled migrant workers moving into these areas, will only increase competition for already tightly held inner city property markets. The ability to buy and borrow against residential real estate through self-managed super funds has opened up a whole new market for Australian property over the last few years.

Interestingly according to the SMSF Professionals Association of Australia SPAAresidential property is a minor element of the total SMSF investment market compared to commercial holdings, representing 3. While the increased promotion of leveraged property purchases within SMSFs was a growing trend, officials are certainly taking a tougher stance and demanding greater transparency around management of these entities.

Do I think we should be worried about mum and dad investors all rushing out and gearing at high-risk levels to secure SMSF property investments? As is evident from the graphic below from Pete Wargent, more Australians are turning to bricks and mortar to build their retirement portfolios, with a notable spike post-GFC reflecting a growing disenchantment with comparatively volatile investment vehicles like shares.

This continuing deluge of property investors keen to snap up residential real estate, particularly in the lucrative Sydney and Melbourne housing sector, is becoming a major market stimulus in its own right.

What we do know is the prolonged spike in investor related borrowings that kicked off with vigour in and then again in is worrying the RBA, causing them to issue warnings about capping investor loan growth and advising lenders that extra capital charges will be imposed on banks breaching a 10 per cent growth limit in this area. Alarmingly, the RBA is concerned that lenders enjoying the fruits of our booming Sydney property market will ignore regulator threats, choosing to pay extra capital charges as they continue to sell more investment loans.

The concern around such unheard of levels of property investor activity is whether these portfolios are built to withstand an inevitable interest rate rise. If investors are too exposed, with unsustainable levels of gearing, what happens when the market turns?

Further, many seasoned property investors are using the current low rate environment as an opportunity to solidify their asset base and reduce non-tax deductible debt, thereby strengthening their financial position in anticipation of any such changes to the current status quo. However even in Sydney the percentage of the population that are at risk of defaulting on their interest rates rise is minimal 4. Another much maligned target of housing bubble enthusiasts is this contentious area of the Australian tax system that supports investment.

However I would argue that property investors provide an essential service to millions of Australians who chose to, or have to, rent their accommodation and as such these investors should be treated like all other business people. In our modern society we pay taxes and expect the government to provide us with certain essential services.

In Australia the government often shares the burden of providing these services with private enterprises indian stock market opening time can often deliver them more efficiently and cheaper. So do aged care providers, schools and public transport providers who provide services in tandem with the government. While government social and public housing programs are helpful, it is only the private rental market that can deliver rental accommodation at the rate and scale that is required at present.

Property investors save a deposit, buy a property, commit to a loan for 25 or 30 years and provide accommodation for others in our community. In return we expect to get a reasonable return on our investment risk, just like other business people do. Negative gearing another share to celebrate it 60s binary options a necessary mechanism, in effect acting as a subsidy for people who are renting and encouraging the provision of rental stock for people who cannot afford to buy.

Some estimate the current shortfall between social housing demand and supply is in the region ofdwellings per annum. The fact is, market cynics are largely ignoring the basic supply and demand equation that drives all consumer-based commodities — with property being no exception. This immense ongoing demand from our ever growing population will continue to underpin Australian property markets oddsmaker free money the long term, particularly in those inner urban areas that hold enduring appeal due to well established infrastructure and proximity to employment opportunities.

Some argue and rightly so that a looming accommodation oversupply is on the cards for certain CBD markets due to an apartment construction boom. But when you put the numbers into perspective, should we really be so alarmed about an impending price correction right across the board? BIS Shrapnel forecasts a surplus of multi-residential dwellings for Victoria in the vicinity of 14, by June Sure, it sounds like a large number in isolation, but when you consider that conservative estimates suggest our population will almost double in size over the next four decades to At least not with sufficient gusto to justify the level of scaremongering we keep seeing in the media.

Then of course there are comparisons to the US, where poor money management and out of control lending practices left many mortgage holders unable to make their repayments, subsequently sending their housing sector into a spiral that resulted in a price crash and burn. Recently, the spotlight has turned to China.

Worryingly, the Wall Street Journal recently published a study that found We have low unemployment despite recent job lossesa strong and resilient economy, low interest rates, a tax system that rewards property investment and a massive undersupply of housing in the face of rising population growth.

Of course we all know the property market moves in cycles which is typically depicted in 4 stages. The boom followed by the downturn, followed by the stabilisation phase which leads to an upturn which sets us up for the next property boom.

Fall a little — not collapse! The nature of this cycle is depicted in a different way by Dr.

Asset Bubble: Definition, Causes, Examples, Protection

Andrew WilsonChief Economist for Fairfax in what he like to call his Wilson Worm:. By the way…other than in a few isolated markets such as mining townproperty never falls into the contraction phase. While our property markets will keep moving in their cyclical nature, over the long term the value of well-located capital city properties will continue to rise driven by two major growth drivers: As the number of Australian households is due to increase by 4.

We are going to have more one and two person households and more of us will be keen to live in medium density dwellings, close to work, amenities and transport. Couple-only families are projected to experience the largest increase of all types of families over the next 25 years and are expected to rise by up to 64 per cent from to reach up to 3.

I see our demographic changes huge population growth and changes in the way we will want to live as more important in shaping the future of our property markets than short term fluctuations in interest rates, supply and demand or consumer confidence. Sure, there will be ups and downs in property prices. I know the scope of this topic makes for a lot to process. If you enjoy it, please feel free to share it around the web. Putting some perspective on the Property Bubble.

Your information will not be shared with any 3rd party. Subscribe to Michael's commentary and get a daily dose of insightful commentary from a wide range of property, money and success experts in your inbox each morning.

This is free and different to the newsletter subscription. Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. May 8, 8: You also miss quote the social dwelling statistics.

Also, 20, dwellings compared with 1. Please stop pretending that you are doing a social service. In the end, the tax advantages favour investors at the expense of first home buyers wanting to owner occupy. It redistributes wealth from those working and saving to buy a home, towards those who have already bought and negatively gear. It also most benefits people already on high incomes. Is that a fair tax system? May 8, 9: June 27, 2: July 10, 6: Deflation, then hyperinflation, messing with markets globally, causes property prices to plummet, and mortgage rates to soar.

As buyer fortunes change, property is placed on the market en masse, with prices plummeting, and mortgagee sales providing opportunities for bargains. A sudden huge increase in property prices usually causes a sudden huge drop too…. March 10, 2: Stop looking at graphs and figures, come out on the streets and see what bubble we havein the last four years the chinese have bought over 4 trillion dollars worth of property in Australia ,believe me i have been to all auctions weekend after weekend ,all overseas Asian investors, no Aussies buying this market.

In 2 months the prices oof brand new properties have dropped thousand dollars…. March 10, 8: May 19, Hey Michael, Just wanted to ask what your opinion was on something. My question to you is that while rising interest rates may not impact the ability of home owners to service their mortgage, do you think that given the current low yields on Sydney property rising interest rates may stimulate a capital flight from the housing market into alternative fixed income investment options that may provide a higher yield?

September 12, 5: Maybe you could read thisMichael and let us know what you think. September 12, And receive a weekly range of analysis, articles and expert commentary essential for successful property investing. Select a state Victoria New South Wales ACT South Australia Queensland Western Australia Tasmania Northern Territory New Zealand Other — International. Featuring topics like property investment, property development helping you understand the processnegative gearing and finance so you can borrow more from the banksproperty tax allowing you to structure for legal tax deductions and asset protectionsnegotiation, property management assisting landlords and tenants understand their right responsibilitiescommercial property for experienced property investment individualspersonal development and the psychology of property investment success.

Your State Victoria New South Wales ACT South Australia Queensland Western Australia Tasmania Northern Territory New Zealand Other - International Join Us. About Us Michael Yardney Subscribe Our Experts Online Store. Feed RSS Follow us on Facebook Follow us on Twitter Follow us on Linkedin Follow us on YouTube Download our Apple app Download our Android app.

So who is right and who is wrong?

Bursting the Talk of a Stock-Market Bubble

And is it all as black and white as two simple sides of a debate? Want more of this type of information? About Michael Yardney Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy.

You may also like Thank you for showing us the facts. But this will not lead to a general market collapse Reply. Leave this field empty. Guide to getting rich. Metropole Property Investment Melbourne.

Error (Forbidden)

Metropole Property Investment Sydney. Metropole Property Investment Brisbane. Metropole Property Investment Finance. Michael Yardney's Mentorship Program. Michael Yardney's Official Website. Michael Yardney's Featured Channel. Michael's Daily Insights Join Michael Yardney's inner circle of daily subscribers. REGISTER NOW Your State Victoria New South Wales ACT South Australia Queensland Western Australia Tasmania Northern Territory New Zealand Other - International Join Us.