Australian Property Prices Heading For A Correction?

Home ownership in Australia is struggling to grow. That’s the conclusion from latest research at South Australia’s Flinders University, which found that home ownership in Australia grew only 0.8 percent in the 10 years from 1996. That would be equivalent to negative growth in most economies because unlike many other economies, Australia had a strong economic growth along with low interest rates during that period.

The research has come out with some interesting facts:
(a) For low income earners over 45 years age and medium income earners under 45 years, the research found that home ownership actually fell by 15 percent over the two decades to 2006.

(b) Unrealistic property price increases have taken away a large chunk of the national income gain from the resources boom.

The research has also revealed concerns that many lower income earners in the 25-44 age group might never be able to own a home because the property prices continue to remain inflated. Overall, the research stops short of saying that Australian property prices are over-inflated and are deserve a correction.

Now, such a research, even if true, would naturally not go well with current property owners, who would see this research as a threat to their property prices, and some of the initial reaction from people has been along these lines. Nobody wants to upset the cart.

However, one fact of real estate industry remains the same across the world: property prices will be in line with liquidity in the economy, and rising interest rates would be an indication of tightening liquidity, which will put pressure of property prices. And like we saw in the US, once a few people in an area are willing to take a lower price for their financial reasons, a price correction can set in quite rapidly.

Whether Australian property prices actually correct or not is anyone’s guess, but given the bullish trend in global economy, it is unlikely that any property price correction will be deep or prolonged, unless the global economy stalls on its way to recovery.


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