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Tuesday, 23 September 2014 01:02

Australian House Prices - Bubble Trouble?

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We do not wish to join the queue of forecasters calling an Australian house price bubble, but we did think it worthwhile to flag this graph that appeared in a recent Financial Review article.

The chart below tracks median house prices in several western countries since 1995.  Clearly the red line, which is Australia shows the highest rate of growth in house prices since 1995 from the countries selected, with Canada coming in second.

Canada of course joins Australia as an exporter of raw materials to China, and in many ways is considered a very similar economy to ours.

The next chart shows the house price growth per state in Australia from the Reserve Bank.

This graph shows sharp price increases particularly in the eastern states (left side of graph), with more subdued price action in Adelaide and Canberra.

Finally we consider the state of Household Finances, particularly the level of debt in the household sector.  The graph below clearly shows that following the GFC, households have not really reduced their debt levels, from an elevated level - they have simply slowed down their rate of borrowing.

 

The level of household debt in Australia is very high by world standards and we continue to remain cautious on investing into sectors that revolve around discretionary consumer spending as a result.  This is evident in the graph below (sourced from JP Morgan)

Australian house prices are considered to be the second most expensive in the world.  While we are not calling for a property crash, which would be in no-ones interest, we are suggesting caution for property buyers given that Australian houses are significantly more expensive than their US counterparts, and Australians have taken on more debt than many of our overseas peers.

 

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein, but should obtain appropriate professional advice based upon their own personal circumstances including personal financial advice from a licensed financial adviser and legal advice. Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306

 

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