Housing bubble fears pop with price rises set to ‘taper’, not burst, says HSBC

July 11th, 2017

AUSTRALIAN residential property is in a price boom, not a bubble, and although price rises are expected to taper off next year they will not bust.

That’s the assessment from investment bank HSBC Australia, which is forecasting a gradual cooldown from next year, rather than an abrupt end to the nation’s run of stellar home price growth.

According to HSBC, Australia swapped a mining boom for a housing boom with a surge in new homebuilding helping to boost the economy at the right time.

“The housing construction boom has helped to fill the growth gap left by falling mining investment,” HSBC chief economist Paul Bloxham said yesterday.

“It has also helped to reduce a housing undersupply that had accumulated — not many houses were built during the mining boom,” he said.

Despite property prices climbing by about 50 per cent nationally over the past five years, HSBC said this growth was based on traditional supply and demand factors.

“Just because prices and housing debt have risen does not necessarily mean that there is a bubble. The key question is whether the rise is in line with fundamentals.”

Prices have risen very little in areas where demand has been weak, while in high-­demand areas — such as the nation’s two biggest capital cities — prices have risen significantly, which supports the analysis of a boom, not a bubble, Mr Bloxham said.

Since mid-2012, prices have risen 6 per cent in Perth, 11 per cent in Adelaide and 21 per cent in Brisbane. These areas felt the brunt of the mining ­retreat and demand has been low, Mr Bloxham said.

“In contrast, Melbourne and Sydney prices have risen 60 per cent and 80 per cent. In addition to low interest rates, demand for housing has been supported by migration and foreign investment, factors which have been strongest in Sydney and Melbourne.

“These fundamental factors largely explain the price boom and, as a result, we do not judge it to be a bubble.”

HSBC’s analysis says there is presently a shortage of about 100,000 homes in Australia.

However, HSBC has warned of a slowdown in price rises next year as new construction adds more houses, and as foreign buyers back off from recent strong activity.

“We expect these markets to cool in 2018 as we forecast supply to gradually catch up to demand, continued tight prudential settings, a pullback in the foreign bid and the Reserve Bank to lift its cash rate from early 2018.”

Instead of price rises of ­between 8 per cent and 10 per cent forecast for this year, the investment bank expects rises across the national market of between 3 per cent and 6 per cent in 2018.

Mr Bloxham also warned about the price gap between houses and apartments.

Apartment prices were ­expected to fall because of the large volumes just built and planned to be built, particularly Melbourne and Brisbane.

“As a result unit prices have fallen in these markets, while detached house prices have continued to rise.”

The Melbourne detached housing market is expected to continue to have solid price growth in the year ahead, ­although apartment prices are expected to fall because of oversupply.

In Sydney, both detached homes and apartments are forecast to show “solid growth” because of greater undersupply in that market and continued strong migration.


Karina Barrymore, Herald Sun