Is there a property bubble in Melbourne by Chris Stampoultzis

May 07, 2014
Catherine Rutherford

Property continues to be in the news but you would be forgiven for being confused if there is a price 'bubble' or not.  RP Data reported in April that Melbourne home prices grew by 7.3% in the past 12 months and unit prices grew by 4.3%.  That's pretty good for property owners but it has not been that extraordinary when you look back over the past 10 years - average annual growth for homes was 5.7% and units was 4.9%.

Looking over another period, the price of Melbourne homes has seen total growth of only 3% and units are down 0.6% over the past three years.

So when you next read about a property price bubble check the period of time that has been measured - it's usually very short term.  Do the same with Melbourne petrol prices and you might see a 10% price jump if you pick the right day of the week, but we all know prices will ease back and the longer term changes are not as extreme.

CBA economists recently stated their opinion that we don't have a bubble, for the same reason the RBA has expressed in the past.  House price rises per se don't cause a bubble - what is needed is for the rises to be fuelled by increased borrowings - leverage - which makes the system fragile and unstable.  This is not happening.  Nor is credit growing for low-deposit loans (above 80% of property value).  Even the 'higher risk' self-employed low doc loans have almost disappeared in the past few years.


Posted in: Property market

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