Australia’s big four banks have united to play down fears that Sydney and Melbourne housing are a bubble. From The SMH:
Testifying at the parliamentary inquiry into banking this week, the chief executives of National Australia Bank, Westpac and Commonwealth Bank all said that while they are worried about elements of the housing market, prices aren’t over-inflated.
“I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,” Westpac’s Brian Hartzer told the parliamentary committee on Wednesday. A bubble isn’t occurring in Sydney or Melbourne, where house prices have risen the most, he said.
“There are increasing risks, but I still believe the answer is no,” National Australia Bank’s Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced.
Commonwealth Bank, which is the nation’s largest mortgage lender, is seeing “lending at levels we are comfortable with” across Australia, Chief Executive Officer Ian Narev told the committee when he testified on Tuesday…
ANZ Bank CEO Shayne Elliott wasn’t directly asked about his views on the housing market when he testified on Tuesday, but speaking before Christmas said that while he was cautious, he wasn’t anticipating “a calamity or a disaster.”
Asking the big banks to admit there is a housing bubble in Sydney and Melbourne is a bit like asking cigarette executives if nicotine is addictive.
Rather than weigh into what they have said, I’ll let the data do the talking.
First, house values nationally are the highest on record when compared against GDP, the second highest in the Anglosphere, and higher than Ireland at the peak of its bubble:
Whereas Sydney and Melbourne have driven the over-valuation nationally, with residential land values (the driver of dwelling values) hitting the highest levels on record in both NSW and VIC in the year to June 2016:
Rental yields – another important valuation metric – have plummeted to record lows in both Sydney and Melbourne:
According to CoreLogic, dwelling values were an insane 37 times annual rents in Melbourne and 36 times annual rents in Sydney as at February 2017.
Meanwhile, despite falling from peak, investor participation in both NSW (55% share) and VIC (46%) remains extreme, signalling a speculative bubble when considered alongside record low rental yields:
Finally, Australia’s household debt – most of which is mortgage debt – is the second highest in the world and dwarfs the other English-speaking nations:
Sure, there are some offsetting factors like strong population growth (offset by strong dwelling construction). But I’ll let you draw your own conclusions about whether Sydney and Melbourne housing is a bubble.
