There’s been quite a bit of speculation over whether Australia has a property market bubble - where house prices are over-inflated compared to a benchmark - and when it might burst. According to housing experts, there’s at least four scenarios where this could happen.
Australia could see a property bubble burst due to:
Scenario #1: Lending tightening, interest rate hikes and mortgage stress
Scenario #2: Underemployment and unemployment creating a slow deflation
Scenario #3: Government intervention failure and market repair
Scenario #4: Global crisis
These four scenarios focus on different tension points in Australia’s and the global economy. One scenario focuses on the balance of actions between regulators like APRA and the Reserve Bank, combined with household mortgage stress. Another envisions the affect that unemployment might have in certain areas.
Some of the factors we may see play out, such as the federal and state government trying to intervene to “fix” problems in the market, as happens in one scenario. But other factors may be out of the government’s control, for example, where a global crisis pushes up risk premiums.
All of these scenarios highlight just how complicated and interrelated the steps that lead to a property bubble burst could be.
Lending tightening, interest rate hikes and mortgage stress
Associate Professor Harry Scheule, UTS Business School
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