From Chris Joye at the AFR:
I believe that Australian home values measured relative to disposable incomes are currently breaching the all-time records set in both 2007 and 2010.
Yet I expect the current boom, which is arguably turning into a bubble, to continue until the RBA starts raising interest rates. Importantly, you do not require mania or double-digit credit growth to have a bubble, as some pundits claim. What you do need is asset prices way above reasonable estimates of fair value and high levels of leverage, both of which Australia possesses today.
Credit growth numbers are only meaningful relative to incomes and the level of leverage. Like house price appreciation, credit growth is running at multiples of incomes and increasing leverage, which should give us all pause.
Anyone not worried about current Australian house price dynamics is a fool. This only ends two ways: higher interest rates and/or macro-prudential brakes on lending.
Yep. But it can end several other ways: an external shock that implodes prices or a supply response that changes fundamentals.
That Australia took the housing inflation path despite the lessons of the global financial crisis is going to be seen in retrospect as one the great acts of economic suicide.