Australia’s “Bubble”: How Australian Housing Prices Compare to the United States’

It does not take a seasoned economist to recognize that the global economic crisis has affected the housing market (or rather, vice versa). In this new landscape, which markets are the best for their values? Experts cannot completely agree, but here is some food for thought if you are considering relocating to Australia (and buy a property there) compared to the US. While Australia’s housing is currently “unaffordable,” it looks like it will come back to reasonable prices without the messy economy-killing crash seen stateside. 

Australia housing prices are high – this is an undeniable fact, and most likely these high prices are at least somewhat unnaturally inflated, even though Australia operates on a mostly resource-driven economy. Experts start to argue over specifics within that fact, such as whether Aussie house prices are out-of-scale with the nation’s median income. While common (educated) opinion is that present housing prices are “sensible,” some also point to similarities between the US housing bubble and the way Australian banks are lending today.

However, others foresee a “soft landing” instead of a “crash” due to many differences between the American and Australian housing and lending markets. To belabor the hackneyed “bubble” metaphor, you still need a thumbtack to pop the bubble – a thumbtack of irresponsible banks putting broke people into homes they cannot afford through predatory lending. One big reason Australia avoided the global financial collapse in the late 2000s was that their financial institutions are more heavily regulated than the free-for-all in the United States. Without these influences, all you’re left with is a bubble that slowly deflates; incredibly expensive houses sit untouched, until supply-and-demand forces their prices to gradually decrease to a more reasonable level.

On top of Australia’s economy relying more on resources than finance, it has another advantage over the American status quo in its higher median household income: in the most recent available data, the average Aussie brought in $65,000, as opposed to the $50,000 being pulled in by your median American. This pales in comparison with the importance of income inequality, which stifles home ownership by choking the middle class (as well as the lower class). Australia’s income inequality is getting a little worse, but will never touch the ludicrous lopsidedness in America. So, when Australian housing prices likely mellow out in the next “cycle,” the average earner will be more able to buy their own place.

Both economies have held a little too much faith in home-ownership as an infallible investment, but the shortsighted greed of major unregulated American banks is not nearly as big a problem in Australia. The US already experienced their resulting crash, making a crawl of a recovery. Australia’s high housing prices do resemble the precursors to the US crash, but Australia also shows signs that they will likely avoid it: the banking system does not hold more power than its lawmakers, so rules put in place to prevent irresponsible banking and the byproduct of economic collapse will hold more weight.

Guest post by Domain Real Estate Australia.

Sources:

http://www.couriermail.com.au/news/queensland/annual-demographia-survey-finds-house-prices-in-australia-amongst-the-most-unaffordable-in-the-developed-world/story-e6freoof-1226558509832

http://blogs.wsj.com/canadarealtime/2012/08/20/australia-vs-u-s-which-is-the-better-housing-market-model-for-canada/

http://www.macrobusiness.com.au/2013/01/australian-income-inequality-worsens/

http://www.deptofnumbers.com/income/us/

http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

http://www.smartcompany.com.au/property-investor/054414-what-s-ahead-for-the-australian-property-market-a-quick-history-lesson-24.html

http://www.crikey.com.au/2013/02/15/why-australias-house-prices-are-anything-but-sensible/

http://minscl.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/038.htm&pageID=003&min=njs&Year=&DocType

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