Saturday, 22 October 2016


A housing bubble is a run-up in housing prices fueled by demand, speculation, and exuberance. Housing bubbles generally start with an increase in demand, in the face of inadequate supply which takes a relatively long period of time to replenish and amplify. Speculators enter the souk, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts.

Conventionally, housing markets are not as prone to bubbles as other financial markets due to the large transaction and carrying costs related to owning a house. However, an amalgamation of very low-interest rates and a loosening of credit underwriting standards can bring borrowers into the market, fueling demand. A rise in interest rates and a contraction of credit standards can lessen demand, causing the housing bubble to burst.

Adjustable-rate mortgages began resetting at higher rates as cryptogram that the economy was slowing emerged in 2007. With housing prices teetering at lofty levels, the risk factor was too high for investors, who then stopped buying houses. When it became evident to home buyers that home values could actually go down, housing prices began to plummet, triggering an enormous sell-off in mortgage-backed securities. Housing prices would eventually turn down more than 40% in some regions of the country, and mass mortgage defaults would lead to millions of foreclosures over the next few years.

The questions of whether real estate bubbles can be identified and prevented, and whether they have broader economic significance are answered differently by schools of economic thought. The financial crisis of 2007–08 was related to the bursting of real estate bubbles which had begun during the 2000s around the world.

Economic bubble characterized by quickly increasing property values until they outperform other elements of the economy and then is followed by a decline in the property value.

Friday, 14 October 2016


"Relative to other parts of the globe, we've been more cautious on Australian bank risk, particularly giving the reliance of Australian banks on foreign funding," said Mr. Shah. 
The economic slowdown in China, along with a crackdown on foreign investors has emerged as one of the factor that has undermined the residential property market.
 According to the research note, there is a growing likelihood of an eventual house price "correction" – which means a fall of 10 per cent from peak levels – because of "imbalances" in the market which include the dominant role of investors and pressures on affordability.
Analysts Ilya Serov, Patrick Winsbury and Stephen Long argue that although banks' balance sheets are strong yet several statistics show these "imbalances" are deepening, making a correction more likely.
In particular, they highlight the fact that some households are spending a greater share of their incomes on their home loans, even when interest rates have fallen.

The recent data says that total housing debt has reached a record high of 140 per cent of disposable household income.
Australia is going through a period of sustained house price appreciation and an increase in household debt. These trends pose a threat to Australian banks because they increase the risk of the correction in the housing market.
This increased supply and tighter financial availability raises the risk of non-settlement, and could expose residential property developers to elevated levels of financial risk. Moreover, it could depress overall market sentiment and put downward pressure on general house prices.”

The hustle-bustle in the housing market are also relevant in considering risks in commercial property markets. This area of Australian business activity has strengthened over the past years, unlike most other parts of the business sector. Australian commercial property has allured strong investor demand, both domestic and foreign.  Any significant reversal of this demand could expose the market to a sharp repricing. At this stage, however, the broader risks to financial stability from this source remain modest, because banks’ commercial property exposures are a smaller share of banks’ total assets than prior to the crisis.

Tuesday, 4 October 2016

Australian Apartment Correction: Not Just a Price Hike

Australian Apartment Correction: Not Just a Price Hike
The so-called “correction” in the prices in Australian apartments is going to be more than a bad news for Australian Real Estate. If the sources are to be believed, this “correction” is about to heavily decrease the prices for homes in Australia. In addition to this, experts are also predicting a nationwide recession due to the issue. The Australian housing cycle has reached its peak and thus, household debt is certain to extend the property bubble of the country.
Shifting of big banks to have the lending standards tighten is considered the prime reason behind this. For the cheap apartments, this will certainly be a blow. But it is inevitable to spread and lead the defaults for the other smaller developers dropping the construction considerably.
Some dangerous consequences to the current situation are being foreseen by the experts. According to them falling of prices in almost all the areas may lead the country to recession. Almost all the big banks seem to share their concerns on the topic. Right now the scenario is that the debt for a household is overextending Australia’s real estate bubble. Moreover, foreign money’s intervention is also having some adverse consequences on the housing market. According to many big banks in Australia, many developments in Australian Real Estate market are being funded by some offshore banks while money from them has almost come to a halt.
Since last year the prices have increased by almost 7 percent which is a point of concern. For more information on the topic and other Real Estate issues, follow us.