House price growth is slowing and prices are likely to continue to decrease in the near future as the Reserve Bank of Australia (RBA) continues its rapid adjustment cycle to control rising inflation. According to Murray, the biggest question is why it is necessary to reduce house prices instead of creating a stable housing market. Melbourne, which experienced a milder growth phase, has recorded a minor decline of -0.8%, with home values now 9.8% higher compared to pre-COVID levels. The housing boom has already pushed housing affordability to extreme levels, and now prospective buyers are facing high inflation and a higher cost of debt, which is leading to lower demand for housing. Increasing house prices and therefore rising lending can lead to difficulties in meeting payments.
A housing bubble is an economic bubble that is usually characterized by a rapid rise in real estate market prices until they reach unsustainable levels relative to incomes and rents, and then they decline. However, a sharp drop in prices would go a long way in addressing the rampant affordability issues for those who are not yet homeowners. Sydney house prices remain more than 20% above pre-COVID levels despite rising interest rates as economists warn of affordability. Several industry professionals have argued that it is not a bubble and that house prices have the potential to continue to rise in line with revenue growth. Research conducted in foreign markets confirms that in areas with high housing appreciation, banks increase the amount of mortgage loans and decrease the amount of commercial loans as a fraction of their total assets.
Australian homes are overvalued by about 40%, and while a correction could hurt investors, it is necessary, according to North. By the late 2000s, house prices in Australia, relative to income, were at high levels similar to those in many comparable countries, prompting speculation that Australia was experiencing a housing bubble like other comparable countries. The Australian housing bubble is an economic theory that suggests that the Australian housing market has been overvalued or is becoming significantly overvalued and is due for a significant fall (also called a correction or collapse). Several economists, such as Macquarie Bank analyst Rory Robertson, say that high immigration and the propensity of newcomers to group together in capital cities is exacerbating the problem of housing affordability in the country. Both ANZ and Knight Frank told Reuters that average home prices would have to plummet by 40% — roughly the amount that U.
S. housing prices fell during the global financial crisis — for Australian housing to be affordable. The Affordable Housing in Australia - A Good Home is Hard to Find report stated that the average price of housing in capital cities is now equivalent to more than seven years of average earnings, rising from three in the 1950s to the early 1980s. Rising residential housing costs can cause excessive lending to the residential housing sector, at the expense of businesses.