5 housing market warning signs to watch in 2017

Contrary to popular belief, property prices don't just rise forever.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you're a property investor in Sydney, you could be forgiven for thinking that house prices go up forever. If you're a young renter locked out of the market, you could be even more forgiven for thinking that was the case.

However, property prices don't rise forever. Here are 5 warning signs that could signal if the housing boom could be coming to an end:

Property is expensive

The Sydney median house price hit $1.1 million in January, around 13 times residents' median annual income of $85,000. On these metrics, the market is one of the most expensive in the world, competing with the likes of London and New York.

Australian household debt is among the highest in the world

Australian household debt is at record highs. Whichever metric you use, whether debt as a % of disposable income, or as a % of gross domestic product (GDP), Australia's debt burden is among the top 3 highest in the world.

Regulators are cracking down on interest-only loans

Data reported by Fairfax media recently shows that interest-only loans have accounted for 60%-70% of all investor loans (and ~40% of total loans) over the past 8 years. The Australian Prudential Regulatory Authority (APRA) recently wrote to all Australian banks to instruct them to:

"limit the flow of new interest-only lending to 30 per cent of new residential mortgage lending", a measure that is expected to take some of the heat out of the market. Banks have also lifted their lending standards, which is expected to have a gradual impact on the amount of money flowing into the property market.

Interest rates are at record lows

Interest rates are at record lows, and an increase of as little as 1% could be enough to place serious stress on many borrowers. The Reserve Bank recently told the market that it is unlikely to either lower or raise rates, for fear of fueling either more lending, or causing payment shocks. So, we are unlikely to see a rate change any time soon.

Bad debts are at record lows

There also hasn't been any supply shocks to the market, such as what might happen if Commonwealth Bank of Australia (ASX: CBA) loans went bad and the houses were repossessed and sold. Bad debts in general, while not quite at rock-bottom levels, are quite low in the banking industry.

With all the issues in housing, it's hard to see the advantage in an expensive loan that sees you commit the next 30 years of your life to repaying a bank. Shares require much less initial investment, don't require maintenance or loan repayments, and are easily sold if you need to raise cash.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »