There has been some rumbling in the media recently, particularly with US Analyst Harry Dent coming out and saying that Australia is heading to the same dip that the US suffered with housing prices. Interestingly he has based his view on the fact that Australian property prices have reached ten times the salary rate.
Whilst in one way I do agree that this is a true, I am also constantly amazed at the amount of people in Australia doing well. Small business owners in particular who run a good solid and successful business seem to be growing their profits. Whilst they are not employing people by the hundreds, on average, small business employee 15 people with a range of 1 – 20 employees. With small business employing over 66% of the Australian population.
I realise that manufacturing and maintenance companies in Australia are suffering and appearing to create a downturn in the economy, but when you look to small business, you will find a surprisingly high sector of the Australian industry doing well. In fact, it has become part of the Australian psyche to bow your head and mumble that things are going really well in business at the present time.
Dent claims that we will follow in the US’s footprints. I think the way we have handled and digested the GFC tells us that we are nothing like the US.
Furthermore, it has been my experience that a major fall in property prices happens in the following climate;
- Australia would need to be in a major depression. This is clearly not the case.
- We would have to be experiencing massive unemployment of around 9 – 11%. Our figures are currently running at 5.8% having fallen from 6.0 in January 2014.
- Exceedingly high interest rates. We are currently experiencing some of the lowest interest rates, certainly in my lifetime.
- Excessive oversupply of properties. On average, according to real estate.com data, there are approximately 23 people looking for ever one house that is on the market today. You only have to surf the data found in www.realestate.com.au/suburbprofile to satisfy yourself that this is true.
For all these reasons, I don’t think that reaching a one in ten factor ratio of salary to house prices is a good enough reason to toll such an alarming bell on Australian property.
I personally believe we are experiencing a well-defined surge after a stalled economy. All motivation and appetite went out of the market when Julia Gillard called an election on the 30th January with an unprecedented gestation period of almost 8 months. You can set your stopwatch on the Australian people. They will not move until they know what party is in. Ironically, even when it doesn’t or shouldn’t affect their personal spending.
Market sentiment is so strong in Australia. People won’t go until they know. So the reserve bank for all their efforts to get the economy moving and people spending dropped rates, and the market stalled.
What we are seeing now is a rapid uptake off the back of a stalled market. People can only stay in a holding pattern for so long, particularly when the family home is involved.
Further weight to my argument is the fact that the Australian investor market accounted for 38.8% of all loans for the past 12 months. This is an increase in of almost 8.0% on previous years with a colossal $10.7 Billion in investor finance.
Our property prices have grown between 8.01% and 15.0% around the country for 2013 – 2014 adding to investor confidence.
So bubble is no trouble, it is a surge!