Local property prices were a major talking point at last week’s Australian Investment Conference in New York, but while the kind of house price growth witnessed over the past 12 months is seen as unlikely to reoccur in the next few years, analysts and market participants saw little reason to worry about a bubble.
Property developer Stockland is among those to tip a more restrained growth rate in the coming year, though population growth will ensure demand remains strong.
“The future is one of growth, albeit likely more moderate than what we have seen in the last 12 months,” Stockland chief executive Mark Steinert told Business Spectator at the Bank of America Merrill Lynch-run conference.
“We think that (the growth) number in 2015 is going to look a lot more like 3.5 to 4.5 per cent, with Sydney and Brisbane probably being the strongest and Perth being the most moderate given the impact of the slowdown in mining capex.”
Questioned over whether a bubble may be forming given the recent run up of prices, Mr Steinert said most measures indicated a market that was not overvalued.
“Looking at all (the) metrics they would suggest that the level of the market is sustainable. That’s not to take away from the fact that there is some affordability challenges in Australia but there’s affordability challenges in most developed markets,” he said.
The sentiments contrast with the findings of the Bank for International Settlements, which warned yesterday there was "reason to expect a price correction in the future."
Still, Saul Eslake, Bank of America Merrill Lynch’s chief economist in Australia, argued the risk of a price crash appeared low.
“There’s been very little lending to people at the bottom end of the income distribution. Moreover, most Australians have a considerable amount of equity in their property so the likelihood that there would be a significant amount of forced selling, which is one of the prerequisites for a big fall in house prices, is … pretty small,” he said.
A key element behind the recent surge in house prices has been record low interest rates and a rate rise appears some way off, according to Mr Eslake.
The renowned economist believes investors should look at the unemployment rate to determine the timing of the first rate hike as history shows the Reserve Bank of Australia is cautious on moving while the jobless rate is rising.
“Never since the Reserve Bank started announcing changes in monetary policy … has it initiated a cycle of rising interest rates until the unemployment rate has peaked and begun to come down,” he said.
With current forecasts for the jobless rate to peak in early 2016, it means the RBA could be on hold for some time.
Meanwhile, Bendigo and Adelaide Bank, which also foresees rates left untouched for “a long time”, is confident the property market hasn’t got too far ahead of itself as the areas of strongest growth in recent times were slower to grow out of the financial crisis.
“Sydney, for instance, had a very long period of little to no growth,” Bendigo and Adelaide Bank managing director Mike Hirst told Business Spectator.
“In fact the average price growth in Sydney over the last 10 years is 3.7 per cent, so it’s barely above inflation.”
Still, the bank expects prices "won’t rise significantly over the next 12 months.”