No bubble says Mortgage Choice chief John Flavell
John Flavell, CEO of home loan experts Mortgage Choice, while not denying the property market is hot in parts of Sydney and Melbourne, says we are not experiencing a property price bubble.
"To state that a property bubble exists in Sydney and Melbourne you would have to believe we will see a sudden and dramatic reduction in property prices over a very short period of time.
"Property prices, like the prices for anything else, are driven fundamentally by supply and demand.
"Is that going to change rapidly or significantly in either Sydney or Melbourne and cause a bust?," he asked.
"In Australia we have a modest rate of population growth driving modest increases in property demand.
"We have had historically low levels of new construction keeping supply tight, especially in Sydney and Melbourne.
"We continue to see high rates of urbanization, particularly in NSW and Victoria, as our population is attracted and retained by our largest cities given the employment opportunities and the amenities they provide.
"If you are prepared to believe basic rules of supply and demand do not apply to the Sydney and Melbourne property markets, and if you believe the population is about to go backwards overnight.
"If you believe that we will be able to manufacture new land close to the heart of our busiest urban centres, if you believe that we are all about to flee to the country and there is a fleet of trains that could take us there and if you believe we all want to move our families into studio apartments and forego our houses, then you just might believe that a property bubble exists in Sydney and Melbourne.
"Property in Sydney and Melbourne is expensive, but it is not about to get any cheaper," he said.
Meanwhile the demand for fixed rate home loans ticked up a little during May, after the Reserve Bank’s decision to cut the cash rate to 2%.
Mortgage Choice found fixed rate home loans made up 18.17% of all loans written in May - up from 17.91% in April.
Its chief executive John Flavell says the demand accompanies speculation that Australia was potentially now at the bottom of the rate cycle.
“Following last month’s rate cut, the domestic economy has started to shows signs of improvement. Consumer sentiment improved dramatically, while business conditions retraced some of the gains reported in March.”