Is the Australian Property market about to crash?

The continuing commentary around the Australian property market is a bit like a movie review that you’d read in any weekend magazine – it’s simply reporting someone’s opinion about the subject and quite often results in very conflicting views. It’s not uncommon to read that one reviewer loved a particular movie and rated it very highly whilst another would conclude that it’s not to their taste and review it quite poorly.

Same movie… but two very different perspectives.

So how do you know which reviewer is right?

Well, the only way to determine that is to check out the facts for yourself – i.e. go and watch it personally – and find out what the movie is actually like.

I think the Australian property market is a bit like this.

With the economic instability in the US and Europe dominating the economic landscape, the discussion of whether or not the Australian market is going to crash is the constant source of speculation, largely driven by overseas “gurus” who believe that our market is considerably overvalued.  Interestingly, those views are in stark contrast to the many respected ‘local’ experts who strongly believe that there is no property bubble at all.

So, much like the movie review, who do you believe?

Well, to help you form your own opinion, here are four reasons I think the Australian property market is unlikely to crash:

• Recession – our economy is growing and has been for the last 5 successive quarters and a recession is not currently on the horizon. Whilst consumers are saving money and retiring debt more than they did pre-GFC, market confidence is rising slightly and our economy is suffering more from ‘nervousness’ than poor economic outlook.
• Interest Rates – interest rates are currently at historic lows.  In Australia approximately 50% of homeowners have no mortgage against their name so this coupled with the fact that most finance experts predict that the next interest rate movement will be down would suggest that affordability is not a major issue and as a result I find it hard to draw a conclusion that the current interest environment would be a catalyst for a property crash.
• Unemployment – a crash would rely on our rate of unemployment levels being high causing people to struggle with their mortgage repayments and offloading their property at any price to take away the “pain”.  However, the current unemployment rate is in a manageable position at just over 5%, which means most people, who want to work, should be able to find a job in this country.
• Over-supply – unlike the situation in the US, with the exception of a few minority markets, overall we don’t have an oversupply of property in Australia that would give any hint of a looming crash. This is further reflected in the strong rental demand we are experiencing which is resulting in low vacancy rates across the country.

So whilst the above is no guarantee that we won’t have a property crash, I think it forms a strong argument to deflect the attention being paid to the overseas commentators who are predicting property “Armageddon”.  Those with a long term view of the Australian property market, have adequate cashflow buffers in place and plan for the expected negative headlines, can insulate themselves from any concern or worry and perhaps even benefit from a contrary approach to investing.

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