September 30, 2013
There is a lot of confusing messages out there about housing bubbles, with the media stirring up a frenzy and industry experts trying to quickly hose it down. But what is a housing bubble and does South Australia have a bubble?
Firstly, what is a bubble? Well Wikipedia defines it as a type of "economic bubble" where property values increase rapidly to unsustainable levels or to prices that are "considerably at variance with intrinsic values". The BusinessDictionary.com defines it as a "temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices." So in short as demand increases, price increase and so to does the bubble.
But when is a bubble not a bubble?
Philip Soos in his article "How to recognise a property bubble" observes that bubbles can not be identified beforehand and can only really be recognised in hindsight.
The frenzy sets in because typical indicators associated with a bubble are low interest rates coupled with a lenders loosening their lending rules that can lead to increased demand for properties. The bubble bursts when the demand stops.
Alan Kohler from ABC's "the Drum" in his article "a housing bubble isn't the problem" says that "bubbles only occur when supply exceeds demand" which is not going to occur anytime soon as there has been a "consistent shortage" of property for a number of years in Australia.
Finally, if you consider that Adelaide house prices have barely moved in the last 2 years, then the only signs of a bubble are the remains of the last one that burst.