The Commonwealth Bank has pinpointed five reasons why house price bubble signs are not evident in Australia.
It listed the five factors that typically characterise a house price bubble.
It then gave their reasons why they are not evident in Australia.
- Unsustainable asset prices, but the current situation is:
Prices supported by the excess of demand over supply
Australia’s population continues to grow at above average rates
Supply-side responding – lift in construction underway
- Speculative investment artificially inflates asset prices, but the current situation is:
Investor interest is a rational response to low interest rates, rising risk appetite and the pursuit of yield.
- Strong volume growth driven by relaxed lending standards, but the current situation is:
Already stringent standards tightened through GFC
Minimal “low doc” lending
Mortgage insurance for higher LVR loans
Full recourse lending
- Interaction of high debt levels and interest rates, but the current situation is:
A high proportion of borrowers ahead of required repayment levels
Interest rate buffers built into loan serviceability tests at application
Housing credit growth remains subdued – at the bottom end of the range of the past three decades.
- Domestic economic shock – trigger for price correction, but the current situation is:
Respectable Australian economic growth outcomes
Relatively low unemployment, high quality lending, low arrears
Source Commonwealth Bank June 2014 results presentation