SYDNEY (Reuters) - Argument over whether Australian housing is in a bubble has dragged on for over a decade. A Google search on the subject draws 600,000 returns. It even has its own Wikipedia page.
Three years after the global financial crisis hammered prices in the United States and Britain, Australian home values are just 5 percent below their lifetime highs. Recently, prices have begun to tick up again thanks to lower interest rates and a sound banking system still able and willing to lend.
Yet mortgage arrears are negligible, household debt has stabilised, savings are up sharply and unemployment is low, suggesting the housing market represents a modest threat to the economy.
The head of the country's central bank certainly wonders what all the fuss is about.
"It has to be said that the housing market bubble, if that's what it is, seems to be taking quite a long time to pop - if that's what it is going to do," observed Reserve Bank of Australia (RBA) Governor Glenn Stevens.
"The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago."
And the RBA is no defender of rising home prices. As long ago as 1995 the then-governor Ian Macfarlane was preaching that ever-higher home costs was a social ill that made some people better off "at the expense of their children."
In 2002 and 2003 the bank ran a verbal campaign against an overheating housing market that played a big part in restraining prices for a couple of years.
And restraint was certainly needed. By one measure, between 1995 and 2002 house prices climbed 82 percent. After a period of calm in 2004 and 2005 prices took off again, getting particularly frothy in 2009 and 2010 when interest rates were slashed in the wake of the global financial crisis.
Like many Western countries, the ascent of home prices was fuelled by debt. Since 1995 mortgage loans outstanding have risen from A$154 billion to A$1.2 trillion, only just shy of the country's A$1.4 trillion in annual gross domestic product (GDP).
Total household debt went from around 68 percent of disposable income in 1995 to a peak of 156 percent in 2007.
WELCOME BACK, PRUDENCE
If it had gone on like that it very likely would have ended badly. However, in one of those strange twists of fate, the global financial crisis short-circuited the cycle.
Australians almost instantly turned much more cautious on debt and decided to save money rather than relying on ever-appreciating home values.
As a result, the ratio of debt to disposable income has stabilised around 150 percent, where it has been for seven years now. Likewise, annual growth in outstanding home loans has slowed to just 5 percent, the lowest since records began in 1976 and far short of the double-digit pace of the past decade.
Only 35 percent of households have a mortgage. Almost a third own their home outright while the remainder rent.
Much of this debt is held by high-wealth households, meaning the people most able to afford it. Seventy percent of owner-occupied mortgages are held by higher-income households - the top 40 percent of earners.
As a result mortgage debt is equal to around 30 percent of household assets, half of the proportion of the United States.
Australians also have a habit of paying down mortgages faster. Almost half of owner-occupiers are ahead on their mortgage payments, so there is more room for prices to fall before owners start to get into negative equity.
Neither was there the sort of lax lending practices that led to so much bad debt in the United States, while Australia has what is widely considered to be one of the toughest banking regulators on the planet. The list of the world's 50 safest banks released this month by Global Finance magazine put Australia's four main banks at between 18 and 21 in the rankings.
Subprime debt was surpassingly rare in Australia and low documentation loans, mainly for the self employed and considered higher risk, currently amount to just 5 percent of mortgage debt outstanding.
Since the financial crisis, banks have only got stricter so that around two-thirds of new borrowers had an initial loan-to-valuation ratio below 80 percent.
As a result home loan arrears, those more than 90 days overdue, amount to an unthreatening 0.6 percent of all loans. That is pretty much where it was in 1995 and compares to more than 3 percent in the United States.
Repossessions are running at around 0.15 percent of all dwellings, compared to a peak of 2 percent in the United States.
The lack of real debt stress is one reason home prices are only around 5 percent below their all-time peak. They fell by almost a third in the United States and by 15 percent to 20 percent in Britain.
A BIG HOUSE BY THE BEACH
Doomsters say property remains way overvalued, pointing out that the government's measure of average house prices is around 6.5 times as large as household disposable incomes.
That would be stratospheric by any standard and is why for years there have been ominous predictions that prices were about to tumble 40 percent or more.
However, it also greatly overstates the problem since the government's measure of prices only covers detached houses in the major cities, the very top end of the market.
Broader measures that include apartments, town houses and all the dwellings outside the cities bring down the average price quite substantially.
One such measure favoured by many economists and compiled by property consultants RP Data Rismark shows home prices are only around 4.2 times as large as disposable incomes.
Indeed, new data on international home prices compiled by the RBA shows Australia is in the middle of the pack and not out of line with the UK, Germany, Italy, France and Canada. By this reading it is the United States and Japan that look like the true outliers.
In any case, that Australian homes should be costly is not so surprising given the peculiarities of the domestic market.
The Australian dream requires you to own a detached house with a large garden, a land-hungry type of accommodation that makes up no less than 76 percent of all homes.
Three-quarters of all homes have three or more bedrooms, and almost a third have four or more. The average newly built home is now the largest of any country at 243 square meters (2,615 square feet), taking the McMansion mantle from the United States.
And, while it is one of the emptiest countries on the planet, it is also one of the most urbanised, with most of the population crowding the coast in just eight sprawling cities.
Having a big house by the beach might be why Australian cities regularly rank near the top in surveys of the best places to live globally, but you should not be surprised if it turns out to be an expensive lifestyle choice.
(Editing by Neil Fullick)