There has recently been another round of news headlines about the imminent collapse of property prices in Australia. These have been based on the opinions of local newspaper commentators, visiting economists and even University professors. And there is a genuine cause for concern if the recent rise in values remains unchecked.
But some perspective is needed. Firstly, the same predictions have been regularly rolled out for the last 15 years or so. Over this period, values have increased between 300 and 400% in Melbourne. That alone doesn’t make them wrong of course. The single most critical factor in keeping our market stable is the Reserve Bank and APRA, the governing body for the banks. Thanks to strong enforcement of lending practices and rates, we have experienced the most stable property market in the world through the GFC and other world shaking events.
Is our market overpriced? Probably. Will prices suddenly drop? Highly improbable. Recent APRA action to tighten lending practices, along with government actions to suppress foreign buying is starting to bite. Price increases are now slowing and may even drop slightly over the next 12 months but will not drop off a cliff as some have been foolish enough to speculate.