Housing Bubble

Fears of a housing bubble in Australia are overblown, says HSBC economist

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Soaring home prices in Australia's biggest cities are driven by strong demand and a lack of supply, rather than indicating a "bubble," according to one of the nation's top economists.

"At a national level, a key reason for rising housing prices has been housing under-supply," HSBC Holdings'  local chief economist Paul Bloxham wrote in a research note on Thursday.

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"This also suggests that a significant fall in Australian housing prices, as occurred in the US and Spain during the global financial crisis, is unlikely."

Five years of red-hot growth have left prices in Sydney and Melbourne up 80 and 60 per cent since mid-2012, fuelling bubble concerns.

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In June, Moody's Investors Service slashed the long-term credit ratings of the big four banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.

Bloxham, a former staffer at the Reserve Bank, said that "fundamental factors" largely explain the price boom and, "as a result, we do not judge it to be a bubble."

Demand for housing in Melbourne and Sydney has been supported by domestic and international migration, foreign investment and a lack of new supply, he said.

(Source: Sydney Morning Herald )