Housing Bubble?

Housing Bubble?

My friends Ticky Fullerton and Michael Yanda at the ABC are running a three part series on Sydney’s property market.

I think it’s right to say that nationally we aren’t in a bubble. Perth prices have actually fallen, as have Darwin prices. My previous blog post discusses big falls in the prices of rural and regional property of as much as 90 per cent.

The very long-term outlook for property looks fine, our population is growing. We do not have the terrible demographics associated with Japan – a country where the population is getting older and shrinking, consequently increasing vacancy rates.

Medium term, Sydney won’t be in property oversupply until 2017 so prices could remain elevated until then.

But the complicating factor is of course debt. Debt fuels bubbles in all assets and debt determines how toxic the subsequent correction is. When debt is used to fund unproductive assets (such as residential real estate) it never lasts.

Easy credit conditions are fuelling what seems to be unsustainable price increases. With over 60 per cent of credit now dedicated to mortgage finance and more than 40 per cent of all mortgages taken out on an interest-only basis, one can’t help but believe that some sort of normalization will occur.

Here is Part 1 of Ticky and Michael’s ABC series:

Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery, find out more.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.

Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances. 

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