Take a look at any city skyline in Australia and you will notice cranes, hard hats and heavy equipment are again becoming a feature. While the resources sector might be struggling, the construction industry appears to be showing signs of life, with the buzz of construction equipment on worksites across our capital cities and outlying suburbs, building the latest and greatest apartments, townhouses and urban villages.
But is there a risk that all this housing construction is helping to fuel a housing bubble? And, if we’re in a bubble, when is it going to burst?
BUBBLE? WHAT HOUSING BUBBLE?
According to BusinessDictionary.com, a housing bubble is a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. How does this speculation start?
Think back to the global financial crisis of 2008. Mortgages in the USA were cheap, not only for first home owners, but also for investors. There were new homes being built all over the country on borrowed money. This drove up the costs from builders and real estate agents in the property market, and many properties and construction jobs were over-priced and over-valued.
Due to the surplus in homes available, values on properties plummeted, leaving buyers running from their loans. The banks acquired many properties from defaulted loans, but with the homes having dropped in value, the banks were left footing a huge loss on the loans that they had supplied, to the point of becoming bankrupt.
Is the same thing going to happen in Australia? It’s certainly possible, we’ve all been warned not to borrow beyond our means, but really – only time will tell.