Macquarie Bank’s Estimates 7.5% Drop In Prices. Will The Property Bubble Burst?

Last week Macquarie Bank suggested that Australian house prices may fall as much as 7.5% over the next two years.

Before we go any further, figures tell us Australian house values increased approximately 14.77% over the last two years, from $440,000 in August 2013 to $505,000 in August 2015.

Relative to this increase, 7.5% is not so high.

In fact 7.5% is not even classified as a correction – in finance a correction is 10%.


In any case, this national figure is a misleading indicator of house price movements because there is so much discrepancy between the different housing markets across

In the last two years, Sydney house values have increased by approximately 40%, while Perth houses fell by 0.56%.

Analysts at Macquarie Bank have attributed the figure partly to slowed population growth estimates at an Australia wide level.

It is likely Australia’s subdued GDP growth, slowed wage growth, asylum seeker deterrent policies and geographical isolation has made our country less appealing as a migration destination.

Rapid value increases in dwelling values in Sydney and Melbourne may be followed by a correction.

Slowed demand from owner occupiers is expected as affordability becomes more severe and migration slows.

This is supported by ABS finance data, which shows a larger amount of money being lent to housing for investment since 2014 rather than owner occupation.

It is understandable then, with the majority of demand for Australian property coming from investors, that when banks limit investor funding it will reduce investor demand and slow dwelling value growth.

However, declines in dwelling prices are somewhat mitigated by Australian frameworks of investment and lending, which appear to be very influential on housing supply and demand.

On the demand side, every time a homeowner’s house value increases, their wealth increases because houses and units are financial assets that can be used as equity in borrowing.

By this logic, it doesn’t matter how high house prices go. In overheated markets, homeowners will always be able to keep up.

Another statistic being thrown around is the overvaluation of Australian houses

In August this year, Goldman Sachs economists estimated Sydney and Melbourne were overvalued by approximately 20%.

What is important to remember is that this figure is partly generated from rental return.

However, if property values are increasing 40% over two years, it makes sense that rent probably won’t keep up as a percentage of the house price.

Falling rental yields have not deterred investors – who have the ability to claim rental losses on their taxable income. It’s a win-win.

I want to emphasise that I do not believe this is a sustainable model for house price growth.

However, it is wrong to characterise the current growth declines as a ‘bubble bursting’. To do so undermines the larger problems of unaffordability that will still exist, even if dwelling prices do go into correction.

Download the latest Property Market Update Report.

Related article: Australia’s Property Bubble – A Smart Investors Guide


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Eliza Owen


Eliza is head Of Residential Research Australia for Corelogic and a respected property market commentator. Eliza holds a first class honours degree in economics from the University of Sydney

'Macquarie Bank’s Estimates 7.5% Drop In Prices. Will The Property Bubble Burst?' have 5 comments


    October 20, 2015 Scott

    I love it how first of all there was no bubble…….

    Now it’s (the bubble that didn’t exist) isn’t going to burst!!!

    clutching at straws to keep this ponzi going……

    This country needs a correction for the greater good in the big two cities….


      Michael Yardney

      October 20, 2015 Michael Yardney

      Scott – how will a correction help the gerater good, when in those 2 big cities 70% of people owne their own home, and many of those who don’t are renting invstors who own proeprty?



        October 20, 2015 Scott

        Well Micheal, of that 70% it would be interesting what percentage actually “owned anything” vs mortgaged or rentvesting, and if you own it, does it matter if it corrects? not really – unless your leveraging of that equity to either buy more IP’s, get a nice new fancy car or take that around the world cruise… which you could probably still do if it dropped 20-30%…

        Of those 70% how many payed these ridiculous prices and have no more disposable income to invest elsewhere or spend on local business?
        Why do you think housing is now so expensive in the first place, because everyone thinks big gains are to be made and pumping all their money into (mostly) existing housing, not productive investments such as new business, technology or infrastructure projects

        What about your kids and theirs, wages aren’t increasing in line with this…. foreign investment rampant but slowing, how does this help Aussies that don’t own anything and Aussie businesses?

        My 2 cents…



          Michael Yardney

          October 20, 2015 Michael Yardney

          Thanks for taking the trouble to repsond.

          The 70% figure is for home owners – not invetsors and stats seem to show half of thee don’t have any mortgage at all



            October 20, 2015 Scott

            So that’s 35%.

            what about the other 65% of the population whom may wish to one day do the same? seems a bit skewed to me…..

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