Is the Sunshine Coast/Australian property market in a bubble?

By Sunshine Coast Financial Planner, Mike Beal | June 11, 2022

According to Dr Shane Oliver, Chief Economist, AMP Capital:

May 2022 has seen the first decline in house prices since the pandemic
The main drivers behind the downturn are: poor affordability with prices up nearly 29% over 21 months; rising mortgage rates; a rotation in spending away from housing; and a decline in home buyer confidence.
– We continue to expect a 10-15% fall in home prices.
– While the RBA is set to continue raising interest rates, the negative wealth effect from falling home prices will limit how much it ends up raising rates by as it does not want to crash house prices and the economy.

The seven drivers of the property downturn

The drivers of the downturn are a combination of:

deteriorating affordability with the 29% surge in prices since the pandemic comparing to wages growth around 2.3% pa;
a more than doubling in fixed mortgage rates from around 2% to around 5%;
the start of RBA monetary tightening which is pushing up variable mortgage rates;
a rise in new listings in Sydney and Melbourne;
a rotation in spending from goods back to services;
high inflation making it harder to save for deposits; and
a decline in consumer and home buyer confidence.

A further fascinating article can be found here by Dr Phillip Hoffman on Livewire Markets: https://www.livewiremarkets.com/wires/the-australian-property-market-just-broke-a-record-but-that-isn-t-a-good-thing.

Interesting points as follows:

During the period preceding the GFC in the US, property prices there rose by the equivalent of 60% of the national GDP. Australia has done 100%-plus over the past three years (!).
During the Japanese property bubble, Japan set the record for the ratio of the value of its residential land to GDP, which was more than 330%. Australia has just beaten that record.
A 200 basis point (2%) rise in interest rates could translate to a 16% hit to property values – this is near that point where you risk a loss of faith in the market.

If you would like to discuss your financial planning options please feel free to get in touch with your Sunshine Coast Financial Planner, Mike Beal, mike@mikebealfp.com.au.