The Australia property market has seen years of seemingly endless growth, but now current market conditions are reaching their boiling point. The property market is extremely overvalued with a poor price-income ratio. If you start seeing western Sydney foreclosures in the news, the market is in for some serious turbulence, says economist Richard Holden.
- Australia property market is at risk of crashing
- Overvalued homes and poor price-income ratio are main contributing factors
- Major Australia banks are publicly feigning ignorance
- Strong economic indicators may prevent the market from fully crashing
“I’m more worried than I have been before … every taxi driver I ever spoke to about this said things has been saying for 25 years, ‘You can never lose money in the Sydney property market’,” Richard Holden said.
Sydney’s home price-income ratio is the second highest in the world, meaning it could be considered the second most unaffordable market in the world as well. Major banks don’t seem to be publicly acknowledging the trend either, which is even more worrying.
“The one that got me really worried was when I saw one of the chief executives of one of the four major banks say on television with a completely straight face, ‘Well, see, the good thing about property is that these are all individual mortgages and these are all uncorrelated risks,” Holden added.
Loose lending standards are also a point of contention many people discuss when considering a crash. The prudential regulator in Australia, however, has cracked down on risky interest-only loans. While 30-day delinquency rates for mortgage-backed security loans rose from 1.59 to 1.67%, default rates were at historic lows, according to Moody’s Analytics.
“If you start seeing in the news foreclosures in western Sydney at record highs or banks say interest-only loans won’t be renewed at end of interest-only period, those are the sort of things where I would start saying ‘well, I am pretty worried that there is going to be a wave of defaults now’,” Holden said.