We do not have a 'housing bubble' and there is a simple explanation why. The media are pushing the notion that we are in the midst of a 'housing bubble' without taking into account the fundamental principals of supply and demand. What drives housing demand is population growth. Where this 'demand' occurs comes down to where the jobs are located, hence the surge in Perth property values during the mining boom. The Bureau of Statistics reported that 105,000 houses were completed last year when demand indicated we required 180,000. According to recent figures we are 306,000 houses short with the figure to rise to 500,000 by 2020. Refer to chart below, whilst population growth has intensified over the past decade, building approvals have declined. Once again there is evidence to suggest that population growth is underpinning the supply shortage. Until this is rectified property values will continue to rise.
James, the current situation should be kept in eprspective. Prices nationally have only just regained their previous peak. While activity has strengthened in recent months, current conditions are well below the booms that have seen overheating in the past. In 2003, for example, the value of housing finance approvals rose by 37% per annum for 3 years and prices increased by 63%.
At a similar stage following easing cycles commencing in July 1996, Feb 2001 and Sept 2008 capital city house prices were showing annual growth of 8, 19, and 19 per cent respectively. Growth in housing credit is also around a record low of just 4.6& compared to 20% in 2004.
According to CBA (2013), a true bubble of rising prices meeds to be backed up by an acceleration in housing credit growth over a relatively short period; an easing in lending standards; and an expectation that dwelling prices keep rising. At the moment, house price growth averaging around 5% per annum is tame by past standards.
I tend to agree with you on this one Dean, however, the one point that gets me concerned is interest rates. Given they are at historically low levels the capacity for individuals to borrow has gone up dramatically. Additionally, with the fierce competition between banks for mortgages I would hazard a guess that lending standards may be getting a little loose in some areas. Should inflation kick in, followed by rising interest rates there would be a substantial cooling in property prices. This scenario feels a little way off yet - but certainly not out of the question.