I think record debt levels are more of a concern for housing markets than you acknowledge (just two sentences on debt). Especially when combine this with a record low cash rate. You would expect that the debt servicing burden would be “about as low as it has been in 14 years” given the cash rate. However how does it compare with the longer term and what happens if rates start to rise by even a small amount?
Thanks Michael an informative piece. There is a lot of gleeful speculation from the media predicting (if not willing) a rout in the housing market. Outside of the click bait headlines there is no primary evidence that confirms this thesis (that I have seen) and the economy is still rather robust across a number of measures some of which you highlighted. Hikmat makes a valid point about household debt levels and the impact of rising interest rates (which is worrying long-term) and why the RBA is caught in a vice and will not be able to raise rates anytime soon. Property, like any other market ebbs and flows and given the stellar growth in recent years it is not surprising some cities that ran hot are off the boil. Give it a year or two and I believe the bearish headlines will return to hibernation once more.
Making the assumption that demand and supply largely determines the price of residential property, is ignoring the HUGE elephant in the room. It is what people can AFFORD to pay, that predominantly determines price. This is of course influenced by how much they can borrow! This in turn comes down to their ability to service the loan, AND how much financial institutions are willing to lend them. Are we just ignoring the outcomes of the Banking Royal Commission? A couple of additional points: Let's not forget that disposable 'household' income increases when both parents are working full time (and the kids are in childcare). In addition to record debt levels, the savings rate is now at only 1%. It's hard for first home buyers to accumulate a house deposit at those levels. Our economy is obviously going gang busters - this explains why the AUD$ just hit $0.71 against the greenback! I guess this makes the widely overvalued property in Melbourne and Sydney more attractive to foreigners - if they are game!