We can expect prices to lift even further, but Australia is not in a housing bubble, according to a new report released by the Committee for Economic Development of Australia (CEDA).
In fact, the report suggests that housing will be the ‘key to a smooth transition to non-mining sectors for our economy in 2014’.
CEDA's 2014 Economic and Political Overview (EPO) shows that despite speculation that strong price gains represent the early stages of a house price bubble, prices on the whole remain largely explained by low interest rates and ‘sharply improved affordability’.
It also points to the release of pent-up sales demand created over recent years and an unprecedented (and increasing) shortage of physical housing stock as factors in the growth.
However, the report says the strongest signal that this is not a housing bubble is the lack of credit growth.
“Housing bubbles are typically credit driven whereas Australian annual housing credit growth is just above five per cent, near the lows of the last 40 years.
“Changing demand drivers also support the absence of a bubble.
“Offshore property investors are an increasingly important source of demand and tend to be funded by capital inflows from overseas, rather than domestic credit.
“Further, house price growth has been relatively subdued in every capital city except Sydney.”
Despite expecting further house price gains, the Committee is of the view that difficult home deposit affordability, higher unemployment and ongoing household and lender caution are likely to moderate price gains relative to earlier recoveries.
CEDA's EPO, which has been produced annually for more than 30 years, provides analysis and discussion from leading economic, political and academic analysts on key issues that will have a significant impact on Australia in 2014.
The full report can be downloaded from the CEDA website.