Australian Property Values

Graph questions second grade

There’s a lot of debate about the future of Australian property values, with strong arguments being mounted on both side of the fence. It’s worth listening to the Australian chief executive of the world’s biggest bond fund Pimco, John Wilson. He emphatically denies that our housing market is experiencing a price bubble and uses some compelling arguments to substantiate his opinion.

For one, says Wilson, Australia’s real estate market cannot in any way be compared to the US or Britain as our economic make-up is poles apart; we still boast strengthening growth and high levels of employment and are in the midst of a housing shortage, not an oversupply as occurred in these nations.

He also observes that although our mortgage repayments are relatively high, the ratio of housing costs to household disposable income has remained the same for more than a decade at 30%. And while household debt is admittedly rising, it is actually good debt – spent on housing – not more on credit cards and personal loans, with the average equity in our homes sitting at a healthy 60%.

Additionally, Wilson believes the RBA have already done their worst when it comes to raising interest rates and others are starting to subscribe to this theory.

Taking all of the underlying fundamentals into account, one can confidently conclude that we are not all about to see the value of our homes and investment properties subside into a property abyss. Yes things have slowed, but this is a normal part of the ups and downs of property cycles. As always, well-located real estate will prevail over the long-term and investors will emerge smiling.

The take home message is – focus on the big property picture, not noise from the naysayers.


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