Australia’s House Bubble has biggest misalignment of OECD countries

In a National Economists Club luncheon in Washington on Thursday, IMF economist Prakash Loungani warned New Zealand, Australia, the Netherlands and Belgium had the “biggest misalignment” with historical price to income ratios and that Canada, Sweden, Norway and Australia had the biggest misalignment in terms of price-to-rent values.

In his analysis of housing bubbles gone bust since the 1970’s, Loungani found that prices in OECD countries last year were still substantially out of whack with rents and incomes compared with average ratios between 1970 and 2000. He predicts further falls in many countries who has already been hit hard with rapidly deflating housing bubbles.

He said the last boom has been so much bigger than previous ones and hence the downturn should be more brutal.

In Australia, our housing bubble is unprecedented. Therefore it is not unreasonable to assume the fall out from Australia’s housing asset bubble popping will also be unprecedented.

» IMF Economist Argues Home Prices Still Have Far To Fall – The Wall Street Journal, 27th May 2010.




7 Comments

  1. I think the sting has clearly gone out of the housing market. Attended an auction today and noticed few buyers and even less willingness from any of them to be goaded by the auctioneer to pay the asking price. The best offer was well below the reserve price and it didn’t sell. Will be attending more auctions in coming weeks to see if this is a trend.

  2. Robert, i thought the same thing. However, a vacant block of land in a local Sydney housing estate sold for 1.6 million dollars at auction this weekend! I was dumbfounded. 2-3 years ago they were selling for 1 – 1.2 million and i thought they were ridiculously overpriced. So not sure quite when this bubble will burst but it’s definitely still effecting Sydney/Melbourne.

  3. Sadly those closest to the market cannot see the carnage around the corner. If you speak to most mortgage brokers, real estate agents, they do not believe it

  4. Heck mate I’m just a dumb worker and I dont believe its possible either!. There is just too many people wanting to live in the capital cities and too many tax payer funded property investors. I get the feeling it’s just too big to fail now.

  5. Well AverageBloke, too big too fail was what plenty said about the US housing market and look at their attempts to prop up the housing market. Realistically throughout history the same thing was said about Japanese properties back in the 1980’s and I’m sure it had been said about Spain, Ireland, Portugal, UK just to name a few.
    In the end Government can only prop up an asset class for so long!

  6. Yeah well the million dollar prices might drop one or two hundred thousand but the median average home that an average person needs to, you know… live in ( shock horror! ) is not dropping in price.

  7. Whoever does not believe that we are headed for a major correction is in dreamland, interest rates will increase at least another 1%, the restrictions on foreign buyers have been reintroduced, should we have a change in government later this year, the Coalition has stated that they will drastically reduce immigration, guess what will happen ?

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