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The 2008 housing bubble burst in the U.S. was the result of a perfect storm. Here’s why the same storm will never brew in the Australian property market.

Ever since the housing bubble in the U.S. in 2008, some property investors have been waiting for the same thing to happen elsewhere. Some, in eager anticipation for prices to plummet so they could start investing. Others, in fear of what could happen to their portfolio if it does happen in other markets. After all, very few people predicted it would happen the first time. 

But in Australia, there is little to no chance of the property market crashing, especially to the extent that it did in America. 

There was a very specific set of circumstances that perpetrated the burst in the U.S – from subprime mortgage defaults to a lot of risky investments in mortgage-backed securities. And these specific circumstances haven’t been observed in Australia. 

In this article, we’ll talk about the perfect storm that caused the housing bubble to burst in the U.S., and how the same storm is unlikely to brew in Australia.

The 4 Reasons

Here are four of the reasons why the Australian property market is not due for a crash in the far foreseeable future:


Reason #1: Strong fundamentals

Australia almost went 30 years without a recession. But even when one broke the trend in 2021, the country’s fundamentals remained strong. And even if another recession seems to be forming in 2023, property investors have little to worry about.

After all, a recession is technically just two consecutive quarters of negative GDP growth. It’s massively different from a depression… which is typically characterized by low employment and bank savings figures. 

A country can have a recession but still have good employment numbers… hundreds of billions of dollars in bank savings… and a strong property market with relatively low interest rates.

And that’s exactly what can be observed in Australia at the moment.

So, headlines purporting that the local property market will fall by as much as 40% are nothing but misguided. 

A crash of such magnitude has never happened in the country before. Not during the great recession of the 1990s, nor the GFC, or even the period of credit tightening from 2017 to 2018.

So, why should it happen now at a time when the state of Australia’s economy could only be considered as healthy?

Reason #2: Lending standards are high and stringent

Another key feature of America’s bubble burst was the subprime lending boom it buried itself beneath. They had very lax lending criteria that even those with shaky credit records were able to take out loans at cheap rates. 

That’s not the case in Australia – it’s almost too difficult for a household to get overextended with debt. 

Banks are generally conservative and have stringent stress testing for loans. This means mortgage holders in the country are stress-tested to be able to handle potential increases in the interest rate to up to 3%. 

Anyone who thinks mortgage owners in the country are in “real trouble” should interest rates be adjusted upwards clearly hasn’t applied for a home loan recently. 

The reality is you’ve got to jump through dozens of hoops to prove that you’ve got above-average income and a good portfolio to hedge on. Only then will you be able to take out a loan to buy real estate here.

Reason #3: No oversupply of property

Apart from the fact that anybody could get a loan for anything in the U.S. in the years leading to the property crash, they also had a massive oversupply of property. This then drove prices down. 

The opposite is true for Australia. 

In fact, we’re seeing a dire supply shortage in properties. And with the reopening of borders resulting in much higher overseas migration, the demand for new households is likely to outrun supply soon.

Basic economics also tells us that when there’s high demand coupled with low supply, prices are bound to go up. The supply shortage will put a floor under a possible fall in house prices, leading to a very slim possibility, if at all, that property prices will crash anytime soon. 

Reason #4: Very low unemployment

Looking at the economic indicators following the run-up to the housing bubble burst in the U.S., one data point that’s glaring is this:

Their unemployment rate was very high at the time. 

We’re not seeing the same circumstance in Australia. In fact, anybody who wants a job can get a job in this economy. On top of that, economists have found that the average Australian is now wealthier than ever. 

Estimates suggest that households saved some $230 billion in excess savings during the lockdowns. Not only that, but the increase in property prices in recent years also means many homeowners have larger equity in their homes than they had prior to the pandemic.

This means the percentage of borrowers who are—or will be—in “real trouble” because of missed payments and such…

It is actually very low.

Stop Waiting for Property Prices to Drop

As mentioned earlier, there was a very specific mix of circumstances that caused the property market to crash in the U.S. in 2008. Anything less than such a perfect storm wouldn’t result in the same magnitude of price falls.

And with the Australian economy showing continued strength for the past three decades, the conditions are just not ripe for a similar crash to happen here.

So, if you’ve been waiting for property prices to freefall so you could catch the bottom, the only thing you’re accomplishing is this:

Letting opportunities pass by you. 

You could wait your whole life, only to soon realise that these are the exact years you should be buying property because prices are only going to get higher in the future. 

Just think back to the start of the pandemic. So many investors waited for the 30% price fall to happen, while others struck while the iron was hot. 

Would you rather be the one cashing in on the further increase in property prices…

Or would you be the one wishing they didn’t lie in wait for so long?

Keen to explore your own property strategy?