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Waiting for a property bubble burst? We have bad news

As the cost of living continues to soar, some Australians are waiting for a “property bubble burst” for their chance to buy. But that’s not the reality.

A stylised image of property in a bubble with a hand holding a pin trying to burst it.
Is Australia in a property bubble, and will it burst? (Source: Yahoo Australia)

A warning has been issued for Aussies still priced out of the property market after values cooled from the pandemic spike that followed cashed-up buyers seizing on record-low interest rates.

Some may have seen a way on to the property ladder if there was another nosedive like in 2018, described by some as the “property bubble bursting”, when markets like Sydney dropped more than 10 per cent in value, allowing those locked out to make their move.

The average home in Sydney costs more than $1 million now and, around the country, that figure is approximately $912,000, according to the Australian Bureau of Statistics (ABS).


But, despite many Australian borrowers going off the mortgage cliff, experts told Yahoo Finance the market wasn’t going to see stressed-out owners selling for cut prices. Here’s what we know.

Is Australia in a property bubble, and can it benefit anyone?

Short answer: no.

In fact, the Commonwealth Bank (CBA) is actually forecasting property prices to hit a new peak next year.

“We’re predicting 7 per cent growth this year and a further 5 per cent for 2024. The economy should be doing better in 2025 because we’re predicting [interest] rate cuts through 2024,” CBA chief economist Stephen Halmarick said at an investor and media briefing this month.

“The lag effect of those should push up economic growth in 2025. So, that should be positive for the property market as well.”

The top economist said Australia was “very well placed” to outperform other major economies, given our appeal as a destination to live and work.

“The supply and demand fundamentals are there and tell me that, even though houses are relatively expensive in Australia, that price trend is more likely to be up than down,” he said.

The median national home price in January this year was $702,725, according to CoreLogic data. So, a 7 per cent rise would push prices up by around $50,000 to $751,915. Another 5 per cent on top of that would see the median national home price rise to $789,510 by the end of 2024.

And CBA is not the only bank to predict house prices will continue to rise. ANZ economist Madeline Dunk told Yahoo Finance the bank was anticipating Aussies would be spending record amounts of their income on their mortgage repayments.

“ANZ Research expects that housing prices will rise 5 to 6 per cent this year and 3 per cent in 2024,” Dunk said.

“Mortgage payments as a share of income are also expected to reach a record high of around 10 per cent. While ANZ Research does not expect further increases in the cash rate, we also think that rate cuts remain a long way away.”

What does this mean for me?

If you’re a homeowner already, this could mean your property value will keep rising, so your loan to value (LVR) ratio will benefit you. For example, if you purchased your home for $500,000 with a 20 per cent deposit at the time of buying, you owned 20 per cent of your home’s value. If the value of your home has increased by 10 per cent, you would then own 30 per cent of your home.

If you’re a prospective buyer, this could mean you will be further priced out of the market. The homes you were previously able to afford would be further out of reach and you would need a bigger deposit to buy.

‘Sustained housing crisis’: If not a housing bubble, then what?

Finder home loans expert Richard Whitten told Yahoo Finance a property price plunge wasn’t likely, although prices were likely to stay “unsustainably high” for a longer period, with dips now and then.

He debunked the idea of a property bubble because it suggested prices spiked too quickly, with the “unsustainable high” forcing a “dramatic crash”.

"I do think prices have risen fast and are unsustainably high for most buyers. But it's hard to imagine prices crashing,” Whitten said.

"And that's the challenge. I think what Australia is facing is not a housing bubble but a sustained, systemic housing-affordability crisis."

It was unusual to see property prices continue to rise with surging interest rates, given the trend “constrains how much buyers can spend”, he said.

However the financial expert said a “dramatic” collapse would need a few more “drastic changes”.

“For example, if lending standards became much much tighter and people were able to borrow much less. And if there was a massive surge in new properties being built, unlike anything we've seen for decades,” he said.

“Neither of those changes seem particularly likely."

What will keep pushing property prices higher?

The most significant factor driving property price growth is increased demand. Simply put, there are a lot of people who live here, and even more on the way, and we just don’t have enough homes for everyone.

“Housing is expensive in Australia because it's scarce, which is driving double-digit annual rent increases and supporting house prices despite rising interest rates,” Grattan Institute economic policy director Brendan Coates said.

“Australians are demanding more housing than they did before the pandemic. People want more space for themselves - either by taking an extra bedroom as a home office or by moving out of the family home or share house.”

The Reserve Bank (RBA) has estimated the number of Australians living in each home fell from an average of 2.55 people in late-2020 to 2.48 people by mid-2022. While that may seem like a small change, Coates explained it was actually very significant.

“That change alone implies we need an extra 275,000 homes just to house the existing population. Some of this change will reverse now in response to higher rents, but many Australians will keep working from home permanently,” he said.

“At the same time, migrants are returning to Australia in record numbers. Migration is expected to add another 1.1 million people to Australia’s population in the next four years, on top of the 400,000 that arrived last financial year.”

So, where to from here?

The experts weighing in predict housing prices will continue to rise for the foreseeable future.

“But probably not at the same pace as what we saw earlier this year,” CoreLogic executive research director Tim Lawless said.

The Albanese government’s Housing Accord and Housing Australia Future Fund (HAFF) plan to create more than 1 million new homes for Australians but it could take upward of five years.

While they should provide relief, there’s still “quite a challenge to meet”, Lawless said.

“Even though we'll start to see more funding flowing through, that's not going to have a lot of immediacy to it,” Lawless said.

“But, at the moment, we are expecting there's going to be a growing imbalance between supply and demand. And, while that should help to support house prices, there are a lot of negative social outcomes that come along with housing [being] under supplied as well.”

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