Anthony Ishac | Sydney Morning Herald | September 20, 2010
Australia’s economy is the envy of the developed world.
Not only did we escape the global downturn with hardly a scratch, but we’re in a very strong position to withstand any more external economic shocks.
We have interest rates back up to average levels and government debt at much lower levels than any of our overseas counterparts.
This means that if the US fell into recession again, or even if China’s economy took a turn for the worse, Australia still has the levers to stimulate the local economy.
When it comes to housing, the strength of the local market has overseas investors and commentators all worked up, even given the moderation in price growth experienced over the last quarter.
Foreign financial markets are convinced that Australian housing is the next big bubble that is about to burst.
Many major retail and investment banks recently released their perspectives on the situation and they all came to the same conclusion – there is no speculative “bubble” in the local property market.
Even if you subscribe to the view that Australian housing is relatively expensive, the sequence of events that would need to occur to spark heavy prices falls is unlikely.
During the global financial crisis Australian property suffered only a 4 to 5 per cent fall in price.
In the US, the 30 per cent fall in property prices was driven by subprimehome lending, and the typical oversupply that accompanies high levels of speculation.
In Britain a similar size fall in prices was driven by a domestic bank credit crunch that was a result of a global credit crisis. Both led to a combination of a collapse in demand and distressed selling.
In Australia we have no subprime lending sector to talk about and a significant undersupply of new housing.We have interest rates at levels higher compared with other international economies, so the Reserve Bank could respond to any overseas credit rationing by dropping interest rates again.
Even in the extreme event of another economic storm which would force banks to withhold new lending, it is unlikely to lead to a wave of distressed selling.
Homeowners with a mortgage are in a strong position. A report from one of the big four banks, considered to be Australia’s largest home loan provider, stated that its average home loan to home-value ratio is only 43 per cent and that 70 per cent of customers are paying their mortgage in advance, and are an average of nine payments ahead.
Australia has an undersupply of housing because of the natural increase in population and immigration.We have an economy where unemployment is approaching historic lows and incomes are set to rise strongly.
If we also take into account strong gross domestic product, retail sales and consumer sentiment indicators, and low mortgage arrears and delinquency rates, doomsayers will continue to be off the mark when it comes to predictions of house price collapses in Australia.