There’s nothing to worry about with the level of Australian house prices, according to Paul Dales, senior economist at Capital Economics.

 

The average house price in Australia rose 175% from 1990 to 2007. Despite a small wobble during the GFC, prices in Australia have since increased a further 60%, on average, to leave them 350% higher than in 1990, says Dales. But fear not.

 

“A US-style collapse in house prices in Australia is unlikely because our lending conditions during the good times have not been as loose as in America and Australian banks are better placed to cope with the bad times,” he says.

 

Dales lists four reasons why there won’t be a dramatic fall in house prices.

 

One, interest rates are at record lows and are still more likely to fall than rise – and any increase probably won’t happen until 2018.

 

Two, plenty of borrowers have money tucked away in their offset mortgage accounts for when rates do rise so there’s a buffer in place.

 

Three, steps taken by APRA to cap the growth of bank lending to property investors are working.

 

Finally, the banks are well-placed to deal with any problem scenarios. According to Capital Economics, just 9% of loans in Australia are being issued to borrowers with a deposit of less than 10%. At the peak of the US boom, it was 29%.