Does Australia Face A Property Bubble?

According to a recent article in the Economist, Australia's property prices are 40% overvalued. Some commentators have also recently suggested that Aussies are perhaps facing a property bubble of some sorts. There are also those who believe that we are headed for a full-scale armaggedon.

This is not surprising. On the back of cheap credit, an influx of migrants (many from China), and a booming commodity sector over the recent years (before the spectacular commodity crash), it does seem that many have put in lots of money into property as an asset class.

Now, with China's growth slowing, and the demand for commodities also waning, Australia is caught in a precarious situation.  Even Meriton's Harry Triguboff thinks that Australia's property outlook is in serious trouble because of the threat of oversupply and this can only be mitigated by an increase in the rate of migration. Somebody needs to prop up the prices before they come crashing down to earth.

What Australia is facing is not unique. Many young Aussies have found themselves priced out of the property market over the years as the surge in prices meant home ownership was out of their reach. Many turned to the rental market, renting small apartments. Others resorted to handouts from Mom and Dad. What has occurred is a large transfer of wealth from the younger generation to the older generation. And income levels are not increasing as fast as property prices are.

We can expect to see more supply being brought into the housing market at the very same time when the economy seems to be slowing and interest rates need to be cut. All this is a fine balancing act to manage. And a perfect storm could hit.

Are property prices at bubble level?