Housing stress test has come and gone

by Adam Smith23 Mar 2012

Talk of an Australian housing bubble is nothing new, Commonwealth Bank chief economist Michael Blythe has said.

“I’m able to trace this concern about some sort of Australian house price bubble all the way back to 2004. It’s been a persistent theme and a persistent question we get from clients, particularly from those offshore,” he said.

But the bubble terminology in and of itself should be telling, Blythe claimed. One significant trait of bubbles is that they pop under pressure, and pressure has not been lacking in the Aussie housing market.

“I’d say in the end that bubbles tend to be pretty flimsy things. I’d say in many ways our housing market went through the ultimate stress test a few years ago and came out the other side in relatively good shape. That’s probably the best indication that we’ve not got a genuine bubble as we know them from historical experience,” Blythe said.

So house prices may not provide much reason for excitement in the near-term, Blythe said, but the Aussie “bubble” may be made of sturdy stuff indeed.

“As an economist, I have to believe in the laws of supply and demand, and supply and demand in the Australian housing market is in a position to at least keep a floor under prices,” he said.