We continue to hear the term “housing bubble” and many of the finance analysts are pointing to either Melbourne of Sydney or both being in a bubble.

Part of the problem with a housing bubble is that we don’t actually know if it is a bubble until it actually pops. There are indicators and we can speculate but until it actually occurs, we don’t actually know if either of these markets are truly in a “housing bubble”.

So, let’s clear up some of the confusion!

What is a housing bubble? A housing bubble is where there has been a period of continued growth that has become unsustainable. Suddenly,

prices for real estate become more that what people are willing to pay and then prices drop. This is the bubble popping.

So, why is there suspicion of a housing bubble?

Many analysts, APRA, and the RBA are seeing strong indicators in both the Sydney and Melbourne markets due to:

  • More people wanting to purchase property and taking on debt;
  • Record low interest rates (current cash rate is 2.0 per cent);
  • Lots of investors in the market (both domestic and international); and
  • Significant rise in cost of real estate.

What impact will there be if a bubble pops?

If a bubble does pop, it may be due to a correction or a large reduction in the pricing of real estate. Only then, can we determine what impact it will have on that market.

Previous housing bubbles have seen price corrections impacting personal wealth and affecting when people are able to retire but also resulted in a lack of affordable housing and job losses.