The Australian property bubble is the economic theory that the Australian property market has become or is becoming significantly overpriced and due for a significant downturn (also called a correction or collapse). Since the early 2010s, various commentators, including one Treasury official,[1] have claimed the Australian property market is in a significant bubble.
Various industry professionals have argued that it is not a bubble and that house prices have the potential to keep rising in line with income growth. The RBA believe that most of the recent rise in property prices since the 1980s, when interest rates have decreased from medium term record highs to record lows, as a transmission mechanism to generate the wealth effect and stimulate the economy.[2]
A property bubble is a form of economic bubble normally characterised by a rapid increase in market prices of real property until they reach unsustainable levels relative to incomes and rents, and then decline. Australian house prices rose strongly relative to incomes and rents during the late 1990s and early 2000s; however, from 2003 to 2012 the price to income ratio and price to rent ratio both remained fairly steady, with house prices tracking income and rent growth during that decade. Since 2012 prices have once again risen strongly relative to incomes and rents.[3] In June 2014, the International Monetary Fund (IMF) reported that house prices in several developed countries are "well above the historical averages" and that Australia had the third highest house price-to-income ratio in the world.[4] In June 2016, the Organisation for Economic Co-operation and Development (OECD) reported that Australia's housing boom could end in 'dramatic and destabilising' real estate hard landing.[5]
^"Treasury Warning on Home Price Bubble". The Australian. Retrieved 20 January 2016.
^Matthewson, Paula (21 June 2012). "House prices must be allowed to fall - The Drum (Australian Broadcasting Corporation)". ABC News. Retrieved 20 January 2016.
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