Are Melbourne and Sydney property markets in a bubble?

housing bubbleBuyers beware, the headlines warn; Melbourne and Sydney property markets are in a bubble, and real estate prices are set to tank!

Well, that may not be the exact wording that keeps popping up in newspapers and online news sites, but it’s something along these lines.

The most recent warning has come from Greg Medcraft, chairman of the Australian Securities and Investments Commission (ASIC).

He is apparently fearful that the RBA’s recent decision to cut interest rates to a historic low of 2 per cent will spur investors’ appetite and leave them exposed to a correction in capital city property prices.

“History shows that people don’t know when they are in a bubble until it’s over,” Mr Medcraft says.

“I am quite worried about the Sydney and Melbourne property markets. In housing, the long-term average income to average price ratio is four to five times, but at the moment it is at historic highs.”

There’s no denying that Sydney property prices are sky-high. The median is marching towards the one million dollar mark and buying even a small apartment in the suburbs closest to the city is fast becoming unattainable to everyday Australians.

But it’s important as a property investor not to generalise; it’s one of the biggest (and most common) mistakes that people make.

Due diligence, as always, is the key here. It’s always best to look at a suburb-by-suburb level, rather than reviewing a location as a whole, as each suburb has it’s own unique supply and demand drivers that will impact its growth and performance.

That said, where do you stand?

Do you think Sydney and Melbourne real estate is in a housing bubble that is dangerously close to bursting?

Or is the recent surge in property values a symptom of normal market cycles, and a consequence of cheap credit?

Share your thoughts in the comments below!

Til next time, happy investing!

Helen Collier-Kogtevs

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