Expert warns why Australia has one of the riskiest housing markets in the world

Expert warns why Australia has one of the riskiest housing markets in the world

Australians who think that our residential market is as safe as houses will be taken aback by this warning from Oxford Economics. It wont take much to tip our market over.

Brendon’s passion for shares started by accident in 2003 and he has worked in various roles around capital markets ever since as a trader, stock analyst and markets reporter with the Australian Financial Review. Most of his wealth has come from share investing than any other asset class, and that has given him the financial freedom not to work full-time, if he chooses to.
Brendon is a medium to long-term investor who aims to hold positions for a year or longer and is focused on fundamental analysis, although he will occasionally use technical indicators to time his entries and exits. Brendon has an MBA from Melbourne Business School and is RG 146 certified. He lives in Melbourne with his wife, three kids and two dogs.

You can view Brendon’s holdings here.

  • Why broker thinks falling ResMed (ASX:RMD) share price is a buying opportunity — January 27, 2022 4:43pm
  • Mineral Resources (ASX:MIN) share price falls 5% following brokerage downgrade — January 27, 2022 11:21am
  • This trend could double already red-hot lithium demand — January 24, 2022 2:29pm

Australians who think that our residential market is as safe as houses will be taken aback by this warning from Oxford Economics.

The research firm claims Australia is among the four riskiest housing markets in the world when measured against some risk factors, including home valuations and debt, as reported by the Australian Financial Review.

Our housing market is arguably the single biggest threat to our economy and a meaningful price correction will hurt the share prices of a wide range of stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).

Australia, Sweden, Canada and Hong Kong have been identified as the highest risk markets and they all have similar characteristics such as a prolonged housing boom, high debt levels, and a significant proportion of mortgagees on floating rate loans.

Oxford Economics pointed out that on a housing valuation index where the long-term average is 100, Australia comes in at 160, Sweden at 165, Canada at 173 and Hong Kong at 203.

History has shown that there is a 60% chance of prices falling in the next five years for markets with a value of 125 or more.

Home prices in Sydney and Melbourne are already falling and this is without any material increase in mortgage rates.

When rates rise in a more pronounced fashion, and that’s a question of “when” and not “if”, Australia could be in trouble as Oxford Economics noted that 82% of mortgagees are on variable rate loans.

It may not take much to put many households under financial stress given that Aussie households are the most, if not one of the most, leveraged.

Add in poor wages growth into the mix and you can see how things can fall like a house of cards. The latest jobs data highlights this risk. While the headline figure was better than expected, underutilisation remains elevated and economists believe it will be a while yet before we get any meaningful wage growth here.

Stocks directly linked to the housing market, such as apartment builder Mirvac Group (ASX: MGR) and residential and retail property developer Stockland Corporation Ltd (ASX: SGP) will be among the first to feel the impact of a housing crash.

But not all companies linked to the residential building sector will be hit as hard. Those that are leveraged to the infrastructure building boom will fare much better.

These includes Boral Limited (ASX: BLD) and Lendlease Group (ASX: LLC).

But there are other blue-chip stocks that are also well placed to outperform in FY19. The experts at the Motley Fool have picked three of their favourite blue-chips for the year and you can find out what these stocks are for free by following the link below.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More on ⏸️ Property

⏸️ Property

How did the Lendlease (ASX:LLC) share price respond last earnings season?

August 14, 2021 | Brooke Cooper

Monday will be an exciting day for the Lendlease Group (ASX: LLC) share price. The company will be releasing its …

⏸️ Property

Mirvac Group (ASX:MGR) share price struggles following FY21 results

August 12, 2021 | Zach Bristow

The Mirvac Group (ASX: MGR) share price is on the move in early trade after the Australian property group reported …

⏸️ Commercial Property

Abacus (ASX:ABP) share price dips despite property acquisition

July 6, 2021 | Kerry Sun

The Abacus Property Group (ASX: ABP) share price is in the red this morning after the company announced the acquisition of …

⏸️ Property

Is the housing market safe in 2021?

December 3, 2020 | Sebastian Bowen

We Fools are normally in the business of covering the share markets, the S&P/ASX 200 Index (ASX: XJO) and everything …

Bank Shares

CBA and NAB may suggest to risky borrowers to sell their property

August 25, 2020 | Tristan Harrison

Big ASX banks Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) may soon ask borrowers …

⏸️ Residential Property

Will the Domain share price follow auction clearance rates higher?

August 10, 2020 | Ken Hall

Auction clearance rates are on the up and that could be good news for Domain Holdings Australia Ltd (ASX: DHG). …

Share Market News

Australian property prices fell again in June. Will the drop continue?

July 1, 2020 | Sebastian Bowen

Whilst we Fools normally preoccupy ourselves with the performance of the ASX sharemarket and the S&P/ASX 200 (INDEXASX: JXO), we …

⏸️ Investing for Income

Are rental yields better than dividend yields?

May 16, 2020 | Brendon Lau

There’re few things more exciting than debating about the merits of Australia’s two biggest asset classes on the weekend! In …

Related Articles


These 5 Shares Could Be Great For Building Wealth Over 50

In this FREE STOCK REPORT, Scott Phillips, and his team at Motley Fool’s Share Advisor have released a special free report, detailing 5 ASX stocks that they think could be fantastic stocks to own as investors prepare for their retirement.

Browse Articles by Category

How can the Fool help you?

Sign Up for Take Stock
Investment news, stock ideas, and more, straight to your inbox.

Get Started Investing
You can do it. Learn about investing with our Investing Education hub.

Win at Retirement
Our latest articles and strategies for the post-work life you want.

Listen to Our Podcast
Hear our experts take on shares, the market & how to invest.

Join Our Premium Community
Join our flagship membership service, Share Advisor.

Follow The Fool!

About The Motley Fool Australia

Our Purpose

To make the world Smarter, Happier, And Richer

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show and premium investing services. The Motley Fool launched its Australian presence in 2011, and since then has grown to reach over 1 million Australians.

Stay connected

This Service provides only general, and not personalised financial advice, and has not taken your personal circumstances into account. The Motley Fool Australia operates under AFSL 400691. For more information please see our Financial Services Guide. Please remember that investments can go up and down. Past performance is not necessarily indicative of future returns. The Motley Fool Australia does not guarantee the performance of, or returns on any investment.