Australian property prices have scaled new record highs as demand for housing offsets buyer concerns about the Reserve Bank’s shock call to hold interest rates steady.\u00a0<\/p>\n
“If we saw a big blowout in the unemployment rate, that’s when mortgage serviceability becomes less stable, less certain.<\/p>\n
“You might have more forced sales and that would add to supply and contribute to a blowout in falling home values.”<\/p>\n
While not putting any numbers around what would cause an Australian property market crash she says: “It would have to be a combination of demand shock and a large increase in unemployment.”<\/p>\n
“So that probably comes from a severe economic downturn.”<\/p>\n
Eslake adds that a combination of interest rate hikes and a severe cut to the migration intake would be necessary for a “demand shock” to the property market.<\/p>\n
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Ben Philips from ANU notes that many homeowners are well ahead in their mortgage repayments. (ABC News: Mark Moore)<\/p>\n
Household wealth<\/p>\n
The bottom line is that any economic or financial event would need to be deep and long-lasting, economists say, to produce a property market correction or crash.<\/p>\n
But Phillips notes that many home owners are well ahead in their mortgage repayments and have managed their finances to help ride out a financial storm.<\/p>\n
“Most people in Australia are pretty wealthy and if you’re a home owner, and those are most of the people who are buying and selling houses are actually home owners \u2014 they have large amounts of equity, they’ve got large redraw facilities to survive during any sort of challenging financial times,” he says.<\/p>\n
Phillips says this, and a chronic shortage of housing, has made Australia’s housing market virtually indestructible.<\/p>\n
“And I think particularly through an environment where you’ve got quite low interest rates and you’ve got effectively a fairly fixed level of housing supply and certainly in the short term, that’s probably why it’s then house prices stay as strong as they have or increase increased quite strongly.”<\/p>\n
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A property price crash, of course, would make many millions of homes more affordable. (ABC News: Ian Cutmore)<\/p>\n
Eslake argues the government and the Reserve Bank stand at the ready to respond to any economic event which poses a threat to financial markets.<\/p>\n
“I think the Reserve Bank would cut interest rates significantly,” he says.<\/p>\n
In addition, he argues, the big four banks, in the event of a big endogenous economic shock, would fall over themselves to help mortgage borrowers avoid foreclosure.<\/p>\n