Australian housing 56.1% overvalued – The Economist

According to The Economist, Australian housing is now 56.1% overvalued based on the long run average of price to rent ratios. The price to rent ratio is seen as similar to that of the PE (price/earnings) ratio used to value shares.

Australia is in 1st position on the leader board of overpriced property. In close 2nd is Spain at 53.4%, Hong Kong at 49.1%, France 39.7%, and Sweden 37%.

Japan had a huge house asset bubble in 1990 and has yet to recover, with the economist calculating prices 33.7% undervalued.

» You can’t keep ’em down – The Economist, 15th April 2010.


  1. Sweet! So do i buy now???

    Well, that is what real estate agents, banks and spruikers wanted me to do!!!!!!

    They are very greedy!!!!! hope Karma will happen to them soon! (housing crashed!)

  2. I can’t believe what I’ve just read elsewhere about what the federal finance minister has recently said….

    >”While he did not rule out changes to negative gearing, Mr Tanner was reluctant about the prospect.”

    >”Any dramatic change in the overall investment framework could lead to a stampede of people out of property which could lead, therefore, to dramatic drops in prices, which of course you are seeing in other economies around the world,” he said.

    So they want to keep prices inflated, keep housing too expensive for the average joe……. and for what?????

    Well Mr Tanner, I’ve got a few share holdings, would you mind boosting them beyond their true worth as well please.

  3. I wonder if the economist factored for the condition that rent prices in Australia are almost certainly overpriced as well (although not to the degree of housing prices)?

    Given that when an economy has a credit fuelled asset price bubble, this bubble has flow on effects to other areas of the economy considering that as the bubble increases so does the money supply which in turns inflates other prices within the economy.

    So if the real estate bubble was to collapse this would cause a collapse in the money supply as people paid down debt like crazy which would also bring down rents. So rather than our property bubble only being moderately over priced and needing to fall 36% (the inverse of being 56.1% overpriced) to come back to a normal rent to price ratio, it would need to fall back the point where RENTS were back to normal AND property prices were back to normal!

    Who knows how big that fall would need to be… 40%? 50%?

  4. Bearing in mind the degree of property exposure of the Aussie “Big Four” Banks, a fall in property value of 30 – 40% would be VERY bad news for their asset base. Gail Kelly wouldn’t be seeing much of a bonus if this were to happen (and it will eventually).

    The psychological (and financial) effects on Aussies would be no laughing matter – paying back more than your property’s worth, year on year, is a particularly devastating and demoralising experience, especially since the “get out of jail free” card – being able to sell at a profit or at worst break-even, would be no longer available.

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