There’s been a lot of talk about a property bubble lately, but is there real evidence to support such a case?

Leading economists from across Australia have weighed in with their opinions, and the overwhelming majority have predicted quite the opposite to the barrage of headlines making waves across media outlets in recent months.

In fact, most of the economic forecasters “believe house prices have risen for fundamental economic reasons, not over-exuberence from investors.”

They predict, on average, that prices will rise by another 10.4 per cent in Sydney this year; and 6.4 per cent in Melbourne.

The 25 forecasters who make up the BusinessDay panel are leaders in the diverse fields of market economics, academia, consultancy and industry economics.

Several are former Treasury forecasters.

Over time, their average forecasts have proven to be more accurate than those of any individual member.

They were asked by BusinessDay if they believed an Australian city was experiencing a housing bubble, and if so, whether that bubble would collapse.

The short answer was no.

“Outside of housing markets, there isn’t a lot that provides optimism.” Alan Oster. Group Chief Economist, National Australia Bank. 

In fact, the majority of them contradicted the opinion of Treasury Secretary John Fraser, who warned last month that Sydney’s property market was showing “unequivocal” signs of a bubble, along with up-market parts of Melbourne.

However, there’s no doubt that unhealthy inflation in house prices has a negative effect on wider economic conditions. As economist Saul Eslake suggests, it widens “the gap between those who own one or more properties and those who don’t”, and ‘locks out’ an “increasing proportion of younger adults from home ownership.”

So what is driving house price growth?

The economists argued house prices are being driven higher by exceedingly low mortgage rates, a relatively low unemployment rate, strong population growth, high demand from foreign investors, poor public transportation, and the capital gains tax and negative gearing regime.

Key Highlights

Growth: Australia GDP change 2015/16 2.5%

Housing (Melb): Home prices year to Dec 31, 2015 6.4%

Prices: Underlying inflation year to June 2016 2.5%

Investment: Mining 2015/16 -25%

Jobs: Jobless rate June 2016 6.4%

Budget: Underlying cash deficit 2015/16 $39b

Rates: Reserve bank cash rate June 2016 1.9%

Markets: AUD/USD at June 30, 2016 US72.5c

Some believed prices will only be driven sharply lower by a much higher unemployment rate (above 8 per cent) and an increase in interest rates.

Only roughly a third of the economists, that is 7 out of 25, believe there is a housing bubble in Sydney or parts of Melbourne.

They blamed historically-low interest rates, poor government policies, and expectations of ongoing real price gains from investors and home owners.

Source: The Age, BusinessDay