Australia housing market at risk of crash

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By CGTN’s Greg Navarro

Australia's housing market is experiencing unprecedented growth in some cities, fueled by historically low interest rates.

But some economists are concerned the housing market could be headed for a crash, if the country's central bank makes any sudden adjustments to the nation’s cash rate.

House prices in Sydney have shot up by 80 percent over the last five years, driven in part by a demand that well exceeds the supply.

That has pushed the median house price to more than one million dollars and created an environment where house auctions often end well above the asking price.

VCG Photo

Australia’s housing market growth, lead by Sydney and Melbourne, reflected a shift in the nation’s economy.

“We had this very strong growth during the mining boom and the reserve bank kept very tight policy settings during that mining boom. It held back the housing sector,” said Paul Bloxham, chief economist for HSBC in Australia and New Zealand.

When the country's mining boom ended, the Reserve Bank of Australia lowered interest rates to 1.5 percent. That allowed prospective homeowners and investors easier access into the housing market and propelled prices, especially in Sydney and Melbourne.

But that rapid price rise has also pushed a growing number of first time homebuyers out of the market and created some anxiety.

“A lot of people here are nervous about how high prices have run. That’s not a bad thing because maybe it will curb some of the enthusiasm and the efforts by regulators to hose down investor activity is also being felt so we have had a flattening of growth,” said Michael Pascoe, contributing editor of Fairfax Media, one of the largest media companies in Australia and New Zealand.

The exclusive suburb of Double Bay, Sydney, New South Wales, Australia. / VCG Photo

The Reserve Bank has tightened lending regulations recently and is widely believed to be considering raising interest rates.

But a recent report warned that doing so too soon could cause the country's housing market to crash.

Bloxham said he believed the Reserve Bank would wait until next year to raise interest rates to minimize any serious risks.

Besides, analysts said the growing demand and lack of adequate supply in certain cities, such as Sydney, should continue to prevent any major market corrections.