In what should be a pre-Christmas cheer to home owners and property investors, the IMF has said Australian housing is only moderately overvalued by 5 to 10 per cent and as a result the correction is likely to be orderly. Rising exports from our mining boom resulting in higher disposable incomes and a shortage of land have caused the surge in house prices in Australia.
This is a dramatic shift from a report earlier in the year from IMF economist Prakash Loungani warning that 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. He said the last boom has been so much bigger than previous ones and hence the downturn should be more brutal.
Last month, The Australian reported on emails it had obtained from the Treasury under Freedom of Information. One email said “It is a concern that the IMF is considering publishing a report that suggests Australian house prices are overvalued.” In September this year another email suggested that “the reference to the potential house price collapse in the last paragraph should be deleted” from the IMF’s World Economic Outlook.
It appears treasury has now “convinced” both the OECD and the IMF that housing prices in Australia largely reflect fundamentals rather than a bubble.
» Housing market collapse unlikely: IMF – The Sydney Morning Herald, 16th December 2010.
» The high price of punting on property – The Australian, 27th November 2010.