Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
When The Australian Housing Crash Will Happen!
112 Plays3 months ago
Australia's Unbreakable Housing Market
Is there really a place where house prices never crash?
Join Jayden on "Buying Your First Home" as he unveils the secrets behind the Australian real estate market's remarkable resilience and explores whether this growth trajectory can continue. From structural undersupply to government policies and banking safeguards, discover why Australia's housing market defies global trends.
Key Topics:
- Supply and Demand Imbalance
- Banking System and Regulation
- Government Policies
- Economic Resilience
🎧 Subscribe now and unlock the key to your first home! For more details, visit: huntergalloway.com.au
Recommended
Transcript
Introduction to Australian Housing Market
00:00:00
Speaker
What if I told you there was a place where house prices had never crashed? Imagine this, you buy a home for $500,000 and in a few short years, it's doubled in value. Or you purchase a unit in January for $500,000 and by July, it's worth $100,000 more. Sounds unreal, right? But if you're in Australia, this is the reality. Stay with me because today I'm going to take you through some of the secrets of the Australian real estate market and what can cause it to come undone. Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips.
Why is the Australian Housing Market Stable?
00:00:39
Speaker
So let's take the first step towards unlocking the door to your new home.
00:00:48
Speaker
Hey everyone, my name's Jayden and what I just said wasn't clickbait, it's the reality of the Australian property market. We're talking about a real estate market where properties have tripled in some areas over the last 20 years. A market where a global pandemic couldn't keep prices down for long. While many countries have experienced massive property crashes, Australia's housing market has shown some remarkable resilience. You've probably heard people say the Australian housing bubble is about to burst. so You've probably heard it from the news, your friends and Uber driver all around. The Australian housing bubble has apparently been about to burst for a very long time. But let's look at the facts. The changes in house values and unit prices in Australia over the major cities over the past 30 years, up until July 2022, both houses and unit prices have steadily climbed. Sure, there's been a few drops along the way, but overall the trend is going up. Houses have skyrocketed 431%, reaching an average of 928,812, while units have jumped by 306%, now averaging 636,352. So despite what you might be hearing about the housing bubble bursting, the long-term picture shows a strong and growing market.
00:01:45
Speaker
Remember the global financial crisis in 2008? Well, house prices in the US fell by over 30%. Australia's only dipped by 5%. And during COVID-19, prices actually went up. So is there really a bubble or something else is going on? Let's dive into that deeper. The big reason behind Australia's steady house prices is simple. We don't have enough homes for everyone who wants one. This is called a structural under supply.
Factors Supporting Housing Stability
00:02:05
Speaker
But why can't we just build more houses to keep up with the growing population? Well, it's not that simple. Many cities have strict rules about what can be built and where. These urban planning restrictions make it hard to create homes, especially in popular areas. This means that even as many more people need places to live, the number of available homes isn't growing fast enough to meet that demand. And when demand outstrips supply, prices go up. So while we keep hearing about the housing bubble potentially bursting, the reality is the ongoing supply and demand imbalance is a major factor keeping house prices steady and often rising. Another reason our housing market is so stable is our banking system. It's pretty different from other countries. Remember the US housing crash in 2008? One reason it happened was that banks were giving out really risky loans. In Australia, our banks are much more careful. We have something called full recourse loans. That means that if you can't pay your mortgage and the bank sells you home, you still owe anything left over. In some countries like in America, during the GFC, you could just walk away from that debt. This makes Australians think twice as much before taking on too much debt. There's also a government body called APRA.
00:03:00
Speaker
They make sure the banks don't take out too many risks with their lending. The Australian government plays a big role in keeping house prices stable. They do this in a few different ways. First, there are first-home buyer initiatives. These are things like the grants or stamp sheet discounts that make it easier for people to buy their first home. Then there's negative gearing. This lets property owners deduct any losses from their rental properties from their overall income, reducing the tax bill. There's also a 50% discount on capital gains taxes for properties held for more than a year. This means that when you sell a property for a profit, you pay less tax. In Australia, we have something called the Great Australian Dream. It's an idea that owning a home is a key part to successful life. The cultural belief drives a lot of people to buy homes, even when prices are high. It's not just about having a place to live for many. It's about achieving
Impact of Foreign Investment and Interest Rates
00:03:38
Speaker
a life goal. Australia has one of the highest immigration rates in the world. More people moving here means more demands for housing. It means more people are looking for homes, pushing up demand, and in turn, house prices. But it's not just the number of people coming in. Foreign investment also plays a part. Overseas buyers see Australian property as a safe and predictable investment. This extra demand from foreign buyers adds even more pressure on prices, making houses even more expensive. Even though the government has made up rules to manage foreign buyers, they still make up a proportion of the market, particularly for new properties. This ongoing high demand from both new residents and foreign investors helps protect the Australian housing market from any dramatic crash or bubble bursting.
00:04:13
Speaker
It creates a steady flow of buyers, ensuring that house prices remain resilient and continue to grow over time. Another key fact that helps protect Australia from a housing market crash is the role of interest rates. When interest rates are low, borrowing money is cheaper. This means that people can afford to take out home loans, increasing the demand for houses. High demand usually leads to higher house prices. Conversely, when interest rates go up, borrowing money becomes more expensive. This typically reduces the number of people who can even afford to buy a home, which slows down price growth and causes prices to drop. The Reserve Bank of Australia or the RBA uses interest rates as a powerful tool to manage the economy and by extension of that, the housing market. During times of economic uncertainty or downturns, the ah RBA may lower interest rate to encourage borrowing.
00:04:50
Speaker
and spending, including the housing market. This helps support house prices and prevents any large downturns. On the other hand, if the house market is overheating and prices are rising too quickly, the RBA may increase interest rates to cool the demand. This helps it bubble from forming and bursting. So by adjusting interest rates, the ah RBA can influence how affordable it is to borrow money for home loans. The ability to tweak interest rates allows the ah RBA yeah to stabilize the housing market, making it less likely to experience a sudden and dramatic
Challenges for Home Buyers
00:05:13
Speaker
crash. While rising house prices might seem great for homeowners, there's a downside. Many people are finding it harder and harder to afford a home. Our homes are among the least affordable comparative incomes. only Belgium and Canada have worse affordability. The affordability crisis is causing real problems. Young people are living with parents longer because they can't afford to buy here. Some are giving up on ever owning a home. And this can lead to increasing inequality and social tension as a gap between homeowners and those who can't afford home widens. And so while Australia's housing market may be stable and continually growing value, it's not without its challenges. The downside of property prices never crashing is that houses get more and more expensive over time, making it harder for new buyers to enter the market.
00:05:48
Speaker
This is a critical issue that needs to be addressed to ensure that everyone has a fair chance at home ownership. Now, you might be wondering if the housing market is so stable, could anything actually cause house prices to fall significantly? The answer is yes, but it would take some pretty extreme circumstances. Let's have a look at those scenarios. Massive unemployment. If a large number of people suddenly lost their jobs, many wouldn't be able to pay for their mortgages. This would force a lot of households onto the market, pushing prices down and with a sudden increase in supply. For the most part, Australia's maintained a relatively stable unemployment rate over the years, thanks to the reverse and resilient economy. Our economy includes various sectors like mining, agriculture and services, which help cushion against large scale job losses in any single industry. This stability in employment contributes to a steady housing market as people continue to have a means to pay their mortgage.
00:06:30
Speaker
However, if there was an extreme scenario where unemployment rose dramatically and remained high for an extended period, it could create financial strain for many households. The situation could lead to an increase in mortgage defaults, enforced sales, driving prices down. While this is a potential risk, Australia's strong economic foundations and effective policy responses have helped historically mitigate these risks. A major worldwide economic crisis could impact Australia's economy and the housing market. When global economies falter, it often leads to reduced demand for Australian exports, job losses and lower consumer confidence. This chain reaction can affect housing prices. However, Australia has a track record of weathering global storms pretty well. During past global downturns, like the GFC of 2008-2009, COVID-19 pandemic in 2020, Australia's economy has shown resilience.
00:07:11
Speaker
For example, during the GFC, while many countries experienced severe economic contractions, Australia managed to maintain positive GDP growth. Even during the COVID-19 pandemic, although Australia did face a recession, the impact was less severe compared to other major economies. Australia's robust economic foundations play a significant role in this resilience. Here are a few factors. Number one, strong economic fundamentals. As I mentioned, Australia's economy is diversified and includes strong sectors like mining, agriculture, education and tourism. This diversification helps cushion the impact of global downturns. Number two, effective government and reserve Bank of Australia policies. The government and RBA have a history of implementing effective fiscal and monetary policies. During economic crises, they've introduced stimulus packages and adjusted interest rates to support and stabilise the housing market. Number three, a stable financial system. Australia's banking system is well regulated and stable, providing a strong foundation for the overall economy. This stability helps prevent the kind of financial crisis that can lead to a housing market crash.
00:08:03
Speaker
Given these factors, while a severe and prolonged global recession could pose challenges, it's unlikely to cause a housing market crash in Australia. Our country's strong economic foundations, effective policy responses and a stable financial system provide protection against such a scenario. This resilience can help maintain confidence in the housing market and supports continued stability and growth over the long term. If the government suddenly removed things like negative gearing or they increased taxes on property, it could cool the market quickly. But here's the thing, property owners are a large and powerful voting group. Any government that made big changes risking house prices would face serious backlash. While these scenarios could cause a downturn, they're unlikely in the near future. Australia's strong economy, careful financial regulation, and political climate all work together to make housing
Strategies for Navigating the Market
00:08:42
Speaker
stable. And remember though that while a crash is unlikely, the market can still have ups and downs. It's always smart to be prepared for fluctuations in house prices. So how do you make the most of this unique market? Well, for first-home buyers, start saving early. The more deposit you have, the less alone and the less susceptible you're gonna be at interest rate rises. Look at government-assisted housing programs like the Home Guarantee Scheme and state-based grants that help you avoid stamp duty. And look at the next and upcoming areas to potentially help you buy something cheaper and get in sooner. For investors, you wanna do your research. Look at the numbers like capital gains, future potential growth, and upcoming infrastructure projects to try and spread areas of future opportunity. And overall, let's remember property is a long-term game. The market will have ups and downs, but historically, it trends upwards over time. Don't try to time the market
Conclusion and Community Engagement
00:09:19
Speaker
perfectly. Instead, buy when you're financially ready and plan to hold on to the property for at least seven to 10 years. All right, so let's recap why Australian housing prices tend to remain stable. Firstly, we have a supply and demand imbalance. Secondly, our banking system is strongly regulated. And thirdly, government policies support the market. High immigration and foreign investment drive up demand. Low interest rates have historically supported growth. And not to mention, there's a cultural emphasis on home ownership across Australia. While the market can fluctuate, these factors work together to make a significant crash unlikely. Do you need any help with finance? At Hunter Galloway, we're the home for home buyers across Australia. If you want a free assessment, hit us up at huntergalloway.com.au. And if you want some more tips like this, join our community. I'll include a link below. Until next time, I'll see you later. um