Australian Housing Bubble Continues to Grow

Median home prices in Australia have hit record highs. Homes in Sydney and Melbourne have reached a median price of $1.15 million and $826,000 respectively. Further, in the past year, Sydney housing prices have risen roughly 20%. Looking at this situation, economists have deemed that a bubble has formed on the Australian housing market. “Less wealthy” Australian residents will be hurt most when this bubble bursts. Surveys show that, last month, 41% of homeowners would be worried about keeping up with their mortgage payments if they lost their jobs. This is, in part, because people with less wealth tend to invest primarily in their homes.

Thus, concerns have risen at the simultaneous inflated prices of housing and non-increasing worker incomes. Australia’s housing market has been listed among four in the world that are in danger of crashing, given a negative shock to the economy or economic downturn. There is a growing fear of recession, much like what happened in the United States when its housing bubble burst in 2008.

Bubble-Burst

In order to mitigate the impact of the housing bubble on Australian residents, the government is looking to take action. It has been reported that the government is considering incentivizing retirees to downsize their homes. The government could do this by exempting proceeds of sales of large family homes from the in-place cap of $1.6 million. This could free up stock for families and allow older residents to downsize without penalization. Other potential policy solutions are in consideration, and many are waiting for the Australian government to unite and combat this predicament as one, cohesive unit.

Sources:

https://www.theguardian.com/australia-news/2017/apr/26/australian-housing-market-economic-risk-labor-chris-bowen

http://www.news.com.au/finance/real-estate/buying/ubs-calls-the-top-of-australias-housing-boom/news-story/92f40f0aacdc84193bb2dc65ea901bb4

https://www.wsws.org/en/articles/2017/04/22/hous-a22.html

http://www.afr.com/business/banking-and-finance/financial-services/aberdeen-cautious-on-australian-major-bank-bonds-due-to-property-bubble-talk-20170427-gvtqgm

 

 

 

 

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6 thoughts on “Australian Housing Bubble Continues to Grow

  1. hmpete18gholycrossedu

    It is interesting to note that the Australian hosing market is in a state where many economists fear that there will be a bubble coming. I wonder what has been driving the increase in home prices? Has it been foreign buyers allocating capitals to high end homes similar to what is happening in parts of the Untied States? If so, maybe the bubble won’t be as bad as it is feared. Another thing that would be worth while to find out is what the primary drivers of the Australian economy are. If the Australian economy is driven by exports to countries like China (that continue to grow,) then maybe the bubble will not happen or be as volatile as expected.

    Reply
  2. lrtamburello

    I was unaware of a possible housing bubble in Australia. I’m unsure of the logic behind having retirees downsize to help decrease the bubble.

    Reply
  3. jpcoug19

    I was also unaware of this housing crisis in Australia. I think it is interesting the government has looked at what happened in the United States and therefore doing what they can to fix the situation. It seems to be a problem that might have been taken too far out of control but it will be interesting to see if they can improve their situation.

    Johnny Coughlin

    Reply
  4. mikelaffin22

    I was unaware of this bad housing situation In Australia as well. Information like this is not always on the headline news so I really enjoyed learning about what is going on in Australia through your post. I hope the Australian government can use the United States and other nations as examples on how to recover from such a housing crisis. Thanks for posting on such an interesting topic!

    Michael Laffin

    Reply
  5. katiepiro

    This is an interesting topic and I am curious to see if downsizing the homes of retirees will have a big enough impact on the economy to absorb the shock from the burst of the housing bubble. Good post!

    Reply

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