In the recent times, a lot of discussion has centered around whether house prices in Australia are over-inflated and whether the bubble may burst any time. The recent surprise and extraordinary move by Altair Asset Management of returning funds to shareholders at the back of worries on Australia’s property market heading into bubble territory, added to the woes. It is worth noting that these predictions have been made time and again but have not eventuated at the level as expressed.
Looking at some facts now - the past one year has depicted a varied trend in housing price in Australia, for instance, housing price growth has been strongest in Sydney and Melbourne, while the conditions in Perth have remained weak. Rapid growth in the supply of new apartments was continuing to drive a wedge between price growth for apartments and detached houses in Melbourne and Brisbane; while a shortage of housing amidst record-low interest rates made Sydney the world’s most expensive property market. There was about 19% rise in house prices in last one year to April in Sydney. On the other hand, the month of May bucked the trend with Melbourne house prices falling 1.8% while Sydney’s prices slipped marginally by 1.3%. 
 

Housing Approvals (Source: Reserve Bank of Australia, Australian Bureau of Statistics)
 
Growth in housing credit to owner-occupiers had moderated slightly late last year while growth in housing credit to investors had increased, although investor loan approvals had declined early this year. Most of the increase in lending to investors had occurred in New South Wales and Victoria, which was consistent with the pattern of housing market activity. The growth of housing credit to investors had initially moderated in response to the announcement by the Australian Prudential Regulation Authority (APRA) of a 10.0% benchmark for investor credit growth in late 2014. However, growth in investor credit had increased steadily since early 2016, even though banks had tightened lending standards and, on average, increased the margin between interest rates on investor housing loans and those on loans to owner-occupiers. Further, some banks had curtailed lending to few segments of the housing market, notably the Brisbane apartment market, where the supply of apartments was expected to increase significantly, raising the risks associated with oversupply and high valuations. Growth in housing credit has continued to outpace growth in household incomes, suggesting that the risks associated with the housing market and household balance sheets had been rising.The number of approvals for owner occupier loans was also seen to dip 0.5% for March 2017 and the value of investor loans rose 0.8% after a sharp 5.7% pull back in February. Further, indicators on investor loans in Feb-Mar suggested that lenders were already restraining the activity to keep within APRA’s existing 10% limit on investor credit growth. 

Housing data for March 2017 (Source: RBA, ABS)
 
With erupting concerns of the housing bubble, the bank regulator (APRA) is seen tightening the bank lending standards. Further, banks are asked to reduce interest-only loans as well as loan amounts that are offered to applicants, due to higher future interest scenarios. This is expected to pose some pressure but generalises a step taken to cool fast rising house prices as seen in the past. Further, the bigger picture says that downturn in Australia’s housing market may also be impacted by the slowdown in China (owing to dependence on commodity exports). On the other hand, some leeway may be found around Australia’s monetary policy and fiscal policy with infrastructure spending having the potential to offset such a downturn to some extent. Although low, the commercial property yields are still attractive in Australia. All in all, the property prices may get an impact and might move at a slower pace as there may be some correction but to say that everything will collapse might be an extreme stance given the present situation.

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