Bloomberg today reports that Australian home prices are now 82% higher than in the U.S. and that rising interest rates may pop the bubble.
According to Jeremy Grantham, Australia’s home prices need to fall 42 percent to “return to trend,” – “It’s like a time bomb, just waiting for the rates to become increasingly impossible to support, All bubbles break, they’re the only thing that matter. They break because we live in a mean reverting world. Things go back to normal, even Australian housing prices.”
John Taylor from FX Concepts LLC manager of the world’s largest currency hedge fund said “The Australian housing market went through 2008 well, But I wonder about the 2011 and 2012 period.” He says, relative to incomes, average house prices in Australia are “colossally high”.
Chief equity strategist at CLSA Asia-Pacific Markets, Christopher Wood said the first home owners boost has put Australia on the path to it’s own subprime mortgage crisis. “In the long term, that policy will boomerang back on the Australian economy and the government because all they’ll have succeeded in doing is incentivizing people to buy houses who can’t afford them — very similar to the subprime issue in America”
» Housing Shortage Makes Australian Home Prices Almost Twice U.S. – Bloomberg, 5th July 2010.