The caution comes after statistics released by RP Data this week revealed that capital city house prices have experienced significant increases over the past decade. In the last 12 months alone, Sydney has experienced over 16% price growth and Melbourne prices have climbed over 11%.
Speaking at the British Australia Chamber of Commerce, Gonski said home buyers and investors mustn’t be so optimistic about capital gains.
"There will come a time when there will be a correction," Fairfax Media quoted Gonski. "The fact is, anyone who believes prices always go up is, I think, a fool."
The looming prospect of a property market correction has been a focus of the Financial Services Inquiry – with APRA, the Reserve Bank and regional banks all submitting concerns to the Inquiry about the consequences a market correction might have on the big banks, as competition in the mortgage lending sector has been on fire.
However, Gonski claims that the big banks are well aware of history when it came to financial lending in the residential mortgage market.
Meanwhile, Australia is amidst a severe property bubble and it can’t be ignored, warns Lindsay David, the author of Australia: Boom to Bust. He argues that “toxic levels” of private sector debt infused by the big banks has inflated property prices to dangerous levels.
Specifically, it's "the sheer size of the loans relative to the incomes here" that troubles David.
"No one in the Western world has ever done what we are doing,” he told Fairfax Media.
Not everyone is worried about a bubble emerging, though. An economist for the Housing Industry Association, Diwa Hopkins, mentioned earlier this month that the property market may be just showing signs of cooling.
“While it’s too early to call a trend, the signs are mounting that price growth is easing back to a more sustainable pace. Annual growth reached what looks to be a cyclical peak rate of 10.9% in the March 2014 quarter. This rate eased back to 10.1% per annum in the June quarter,” she said.
According to official figures released last week, the construction of new residential housing has also increased in the June quarter, which will aide a downwards push on property prices.
