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Is Australia Headed For a Dreaded Property Bubble?

Prices for property in Australia have been accelerating at rates scarcely seen anywhere else in the world in the last few years, but could there be trouble ahead for one of the most active markets in recent times? Rises have often been criticised as prices start to exceed the levels of affordability for buyers, and now an expert has said that it is this reality that could see the market head towards the sort of problematic property bubble that has previously struck down the markets in the US and UAE.

Fears over a bubble were first raised in the nation in 2012, but now an author and leading economist from the US, Harry Dent, has said that the danger is starting to rear its head once again. He added that the next few years are now very likely to see a slump of some kind in final sale value of Australian homes. Mr Dent believes that prices could fall by as much as 30 to 50 per cent during this time, with the worst case scenario seeing house prices drop from the current average level of $763,169 (£411,000) to around $381,584.

Bubbles always go up to the point where they just become affordable – and then they burst … They burst precisely because they are so good,” Mr Dent told International Business Times. He likened the potential problems to those seen in the US in days gone by. In Sydney, Mr Dent said, prices are currently ten times higher than the average income, which is the same ratio that was faced in California when the US market peaked. 

However, while he added that the bubble will come between this year and 2016 at some point, others disagreed with his predictions. Australian Property Monitor senior economist Andrew Wilson said there is an underlying strength in Australian property. “The preconditions are not there … There is no bubble to burst,” Mr Wilson stressed, quoted by Fairfax Media. He conceded that there is likely to be a fall in price in the next few years, but that it will be a small drop as opposed to a catastrophic decrease.