The Australian Housing Bubble

4083 WordsNov 25, 201317 Pages
The Australian Housing Bubble The United States of America has seen its real estate market drastically decline which set off the 2007 global credit crisis. These have led to several countries examining their own economies for signs of weaknesses, particularly focusing on their financial institutions and their property markets. A “bubble“ in the property market refers to housing prices that do not reflect their fundamental value, and the failure of the market to correct itself leads to further deviation. The deviation from the efficient market is exactly the amount of correction needed. However, the ability to identify fundamental value in reality is difficult and therefore the existence of the bubble can only be viewed…show more content…
With different motivations and consequence, this point determined that government intervention did not directly lead to the increase of property prices. Unemployment to Population ratio Source: (Australian Bureau of Statistics 2012) A factor justifying the increase in property prices would be unemployment rate. Data is taken from Australian Bureau of Statistics (ABS), we would be filtering raw data to just full-time workers and not taking into consideration part time work. The rationale is that, there is a higher probability of property buyers holding full time jobs. Financial institutions here would only issue loans if you were a permanent resident (PR) or citizen, you could only be a Permanent resident if you hold a full time job. The reason of not just using an unemployment rate but unemployment to population ratio is because we need to consider the growing population in Australia to determine an accurate assumption. Data from the ABS site shows that the unemployment rate on all states is extremely low. Income being one of the crucial indicators of the raise in housing index comes from jobs. With unemployment to population ratio being that low, most owners would have the means to earn income and have the capacity to repay mortgage loan if it is acceptable. Lending Standards Prudent lending standards help ensures financial stability. Unlike the United
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