Do you agree with Shane Oliver that the Australian residential property market is a long way from turning into a house price bubble?

AMP’s Shane Oliver says Australian house prices have turned up at a time when they are still overvalued but there is no sign of a new property bubble.

The average annual capital city house price growth is now around 5%, having initially failed to respond to rate cuts, according to Shane Oliver.

"This is coming at a time when house prices in the UK and the US have also started to head up. The only difference is that prices in these countries are turning up from much lower levels, whereas Australian house prices are turning up from a high level," Oliver says.

"Fears of a renewed bubble have also been heightened by a surge in Sydney’s auction clearance rate above the 80% level, well above its normal cyclical high of around 70%."

He says although Australian house prices have cooled, they are still overvalued with real house prices still above their long term trend by around 7%.

And he says the ratio of house prices to incomes in Australia is now 21% above its long term average. 

But he says apart from overvaluation and hot Sydney auctions there is little evidence of a housing bubble at present.

"This is not to say that it won’t turn into a house price bubble but at this stage the property market is a long way from that. And with the pick up relying on improved affordability with house price to income ratios remaining high it wouldn't take much in the way of price increases for the improvement in affordability to be undermined. Rising unemployment may also act as a dampener on house price appreciation," he says.

"The cyclical upswing in house prices likely has further to run with gains likely to be around 5% to 10% over the year ahead. However, the overvaluation of Australian housing will likely see real house prices stuck in a 10% range around the broadly flat trend that has been evident nationally since 2010.

"This is consistent with the 10-20 year pattern of alternating long term bull and bear phases seen in real Australian house prices since the 1920s. See the third chart in this note.

"The long term bull phase of Australian house prices that started in the mid 1990s likely gave way to a long term bear phase commencing in 2010 that in the absence of an unexpected economic collapse is likely to be characterised by a flat trend in real house prices until the excesses of the 1996 to 2010 period are worked off."

{module Do you agree with Shane Oliver that the Australian residential property market is a long way from turning into a house price bubble? }