Australia’s Housing Market 1st Recession in 3 Decades
Australia’s A$7.1 trillion ($5.2 trillion) housing market is facing the ultimate stress test the first recession in almost three decades and passing with flying colors for now.
Economists had predicted property prices would tumble 10% or more as Covid-19 swept Australia; now, they’re scrambling to reverse those forecasts to gains of 5-15% in the next couple of years. Policy makers have switched from worrying about plunging prices to being on guard for excessive exuberance.
A recent Saturday auction at the Sydney suburb of Forest Lodge around 2.5 miles from the city center captured the bullish mood. About 30 people gathered in front a four bedroom Victorian terrace up for auction. The bidders – ranging from younger professionals to middle-aged people – kicked off at A$2.4 million and moved up in increments of A$10,000, then A$5,000, until the hammer came down at A$2.74 million.
It’s a dynamic that’s emerging in other countries as low interest rates fuel asset prices. While the housing strength is good news for the economy’s recovery, to housing bears who have been proved wrong time and again for a generation in Australia – further gains risk fueling the bubble that is destined to pop one day, leaving a trail of bad debts.