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Secret Agent and The 7:30 Report

Secret Agent founder Paul Osborne speaks with ABC’s 7:30 Report regarding Melbourne’s accelerating property values. Other high performing cities, Sydney and Perth, are also discussed. There is speculation that Australia may be headed towards a ‘bubble’ situation, much like the US just prior to the GFC. Click here or below to view the full video on ABC’s 7:30 website. Alternatively you can read the full transcript below.

There are rising concerns a bubble may be beginning in Australian house prices putting pressure on the Reserve Bank over interest rates and raising questions about where prices could end up.

The 730 Report

LEIGH SALES, PRESENTER: If you own a house all the talk currently of record property prices and auction clearance rates is great. If you’re trying to buy not so much. The very strong growth in house prices this year has sparked speculation about whether Australian property is heading for a bubble. It’s possible prices could grow even faster if interest rates fall below their current 53 year low of 2.5 per cent. Today the Reserve Bank left the official cash rate where it was but how long will that last? Here’s Greg Hoy. GREG HOY, REPORTER: Hot property, with interest rates sitting at historic lows the housing market in Australia’s capital cities is roaring back to life. It’s homes in Perth and Sydney in particular that are really under the hammer and already breaking records. KIM JONES, DI JONES REAL ESTATE SYDNEY: We’ve just had our record month in 20 years in a month that’s not normally particularly good. GREG HOY: Selling agents like Sydney’s Kim Jones have enjoyed clearance rates above 80 per cent and rising. KIM JONES: The apartments here, most of them have been sold. There’s only two left and they’re selling between $3 million and $17 million. In the last few years apartment like this, they struggled and it wasn’t so much about the price, it was more about the amount of buyers around that were confident. GREG HOY: Certainly Sydney vendors like Leslie Moor are finding it easy to cash in. LESLIE MOOR: It is back to the good old days and I think that if you look at the number of auction signs that are up and sold signs that are up, that Sydneysiders are really enjoying once again selling and buying property. TIM LAWLESS, RP DATA RESEARCH DIRECTOR: We’ve seen growth rates in Sydney over the past 12 months at about seven per cent. So compared to the capital city average which is 5.3 per cent, Sydney is over performing and we are seeing that rate of growth accelerate. GREG HOY: Sales in the other smaller capitals are lagging but Melbourne isn’t far behind Sydney with 75 per cent of homes on the block cleared at record prices. PAUL OSBORNE, BUYERS ADVOCATE “SECRET AGENT”: Sold pushing the benchmarks. In this area which has traditionally been a first homebuyer market, a couple of years ago this would have been trading around the $700,000 mark. With the low interest environment we’re seeing some prices, or some results overshoot what we would consider to be fair value. GREG HOY: Ask around the auctions and you will find the surging prices are being fueled by investors flooding into the market, seeking greater returns than bank deposits or the volatile share market. PAUL OSBORNE: A lot of self managed super funds have crept into the market in a big way in the last couple of months. So self managed super funds have come in. We’re also seeing a lot of foreign investment as well. So as the dollar has slowly come down, we’ve seen a lot of money come in from China. GREG HOY: This is what makes it very difficult for first homebuyers to compete. Like Melbourne’s Rob Seddon and his family. ROB SEDDON, FIRST HOME BUYER: The good quality property that we have found has gone way over the guide price. So we’ve been looking at 5, 10, maybe even 15 per cent over what the top end of the guide price was which has pushed it over our range. GREG HOY: Or Chris and Tegan Horsley-Wyatt. CHRIS HORSLEY-WYATT, FIRST HOME BUYER: It’s been tough recently and the ones out there are going for more than what we’re able to spend. GREG HOY: There’s increasing concern that rising house prices are forcing first homebuyers to borrow more and more from banks. What percentage of what you hope to pay will be borrowed? CHRIS HORSLEY-WYATT: So it’s about 90 per cent will be borrowed. GREG HOY: And do you worry about what might happen if interest rates then take off again? CHRIS HORSLEY-WYATT: Yes. GREG HOY: Rising house prices are just what the Reserve Bank ordered. Housing is by far Australia’s largest investment asset, worth more than $5 trillion. Dwarfing both the stock market and fixed interest investments combined. Ideally, rising house values boost consumer confidence and spend ing, unless, of course, the housing market gets overexcited, which is precisely what many fear is beginning to happen now. MARTIN NORTH, BANKING ANALYST: I think we’re in a bubble at the moment and my own view is that it’s more sinister than a bubble because it’s essentially a long term systemic problem in the housing sector. PAUL OSBORNE: It is possible within the next six months we could see still continual acceleration in the marketplace but I think if that does happen it won’t be a good thing and that would end in a correction of some sort. GREG HOY: The worst case scenario is the prospect of a collapse of the house price bubble as seen in the US prior to the global financial crisis. The Reserve Bank has recently “pooh poohed” the prospect of an Australian bubble as have others. MALCOLM EDEY, ASSISTANT GOVERNOR, RESERVE BANK: We shouldn’t be rushing to reach for the bubble terminology every time the rate of increase in house prices is higher than average. You’re just going to be unrealistically alarmist by making that call. GREG HOY: But while the RBA denies there’s a bubble building it has warned buyers not to expect the great gains in property prices seen previously and it has warned banks to maintain strict lending standards or risk stricter regulations. TIM LAWLESS: If we do see the levels of growth continue that we’re seeing in the marketplace at the moment or even accelerate, I think that’s where we’re starting to see a lot more danger that will start to see leverage on household and household debt levels starting to rise and that will be quite alarming, particularly for the Reserve Bank whose key objective, of course, is financial stability. GREG HOY: The difficult decision for buyers, however, is when to venture in to the market with some analysts warning, as interest rates inevitably rise, inflated property values will inevitably fall, though not everyone agrees. KIM JONES: I don’t believe the property market is going to burst, not at all. There is not enough property for the demand for people here in Sydney. And it’s proven, like we’ve got expats returning home, there is not enough properties. So there’s no burst of bubble.