UBS bubble forecast, but no apparent price pop trigger

UBS bubble forecast, but no apparent price pop trigger
UBS bubble forecast, but no apparent price pop trigger

Australian property prices are potentially heading towards a correction in the next two or three years, the leading investment bank, UBS says.

Its bubble analysis of soaring property prices concluded there was no sign yet of any impending cause for the burst, hence its vague 2016-2017 timeline.

"Overall, housing is showing some bubble-like features, but it lacks a trigger to pop it near-term," UBS senior economist George Tharenou said.

A rate hike by the RBA will be the key to any price correction, noting previously home prices growth periods were hit by interest rate increases in 2003, 2007 and 2010.

"Those downturns were only triggered when the RBA hiked," he said. 

"Historically the key catalyst for housing approvals to peak is RBA rate hikes; not excess supply or unemployment."

The wealth advisory group noted in newspaper reports that average house price to income ratio was tracking at record rates of 5.5, similar to bubble-like peak levels prior to the corrections of 2003, 2007 and 2010.

George Tharenou said he hoped that prices will moderate "so we get a soft landing."

"The risk case, of course, is that that won’t happen,” he said.

UBS predicts national investment in housing will grow by 10% into 2016, prompted by record low home borrowing interest rates. 

"My forecast is for 6% (house price growth this year) and I have a soft landing in my forecast, but I’ve been thinking this for a while and the market has only continued to ­accelerate.”

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

Bubble Burst


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