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Australian Housing 'Bubble' Fears Overblown, HSBC Economist Says

  • Paul Bloxham says lack of supply helps to explain price gains
  • Nation can avoid repeat of U.S., Spanish slumps: Bloxham

Soaring home prices in Australia’s biggest cities are driven by strong demand and a lack of supply, rather than indicating a “bubble,” according to HSBC Holdings Plc’s local Chief Economist Paul Bloxham.

“At a national level, a key reason for rising housing prices has been housing under-supply,” Bloxham wrote in a research note on Thursday. “This also suggests that a significant fall in Australian housing prices, as occurred in the U.S. and Spain during the global financial crisis, is unlikely.”

Five years of red-hot growth have left prices in Sydney and Melbourne up 80 and 60 percent since mid-2012, fueling bubble concerns. In June, Moody’s Investors Service cut the long-term credit ratings of Australia’s four biggest banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.

Bloxham, a former staffer at the Reserve Bank of Australia, said that “fundamental factors” largely explain the price boom and, “as a result, we do not judge it to be a bubble.”

Demand for housing in Melbourne and Sydney has been supported by domestic and international migration, foreign investment and a lack of new supply, he said. Price increases have been much smaller in places such as Perth, where demand has been weaker amid the waning of a mining boom.

The Australian Prudential Regulation Authority has gradually been ratcheting up restrictions on riskier loans and in recent months the big lenders have all raised interest rates charged on interest-only loans. Bloxham said he believes these regulatory measures will help cool the market, along with lower demand from overseas and increased supply.

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