IMF: Australian housing correction “likely to be orderly”

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.


  1. They may have convinced the OECD and the IMF, but they need to convince the growing
    number of housing bears that are the ones who actually buy these homes.


  2. hmm but at this point in time you would have to say that he is right. However I’d like to come back in 6 months time and see what the situation is with Unemployment and China.

  3. “Australia’s housing shortages contrast with overbuilding and excess supply in the US. Since 2006, Australia’s population and immigration has outpaced the number of new dwellings, in part because of frustrating planning and council restrictions on development. This hasn’t happened for at least half a century and also should cushion the correction.” The “land banking” that large developers engage in is also a factor in maintaining the bubble.
    But most importantly, sentiment is kept high to encourage “greater fools” entering the market

  4. AverageBloke you took the words right out of my mouth. Lets talk in 6 months time. Especially after China has to raise interest rates a few times and maybe Australia.

  5. Hi everyone,
    I have been following this website for over a year and totally agree that Australia property is a ponzi scheme developed by many governments over the years. BUT I am at that point where I need to know whether I should buy or not buy as I am looking to start a family.
    If I buy, I could end up being the ‘greater fool’ but I just feel the government and powerful organisations have too much to lose for them to let the scheme crash. They will do everything they can to stop it crashing. The only thing that will bring it down will be the China factor and if that happens, we are all screwed.
    So my question is – Should I take all my hard earned cash saved over the past 10 years and plough it into a 2 bedroom unit? Or should I wait say 1-2years and then re-evaluate?

  6. No No No,

    You’re all wrong, the latest article on says so, it says high prices here to stay….

    They say :

    “The current historically high terms of trade are expected to be long-lasting,” the report’s authors Patrizia Tumbarello and Shengzu Wong say.

    “Strong population growth and high real income growth in the wake of record-high commodity prices this year will continue to support house prices.”

    So there, it’s all good, nothing to worry about, the fact that the dumb-asses who produce these reports don’t actually live here and see everything for what it really is has nothing to do with it.

  7. @FHB Dreamer.

    We are not served well by our media or our governments or powerful business interests. Wikileaks is timely absolute proof of this. Our media serves us partial truths and absolute lies motivated by financial interests and political philosophies held by media owners. Compound this with government manipulation, apathy and either incompetence or an unwillingness to serve the public good by publishing unbiased truthful information on which decisions can confidently be based

    Do your sums and compare the current lifetime costs of owning a house compared with the current cost of renting.The answer is as easy as that. Don’t be one of the seething bleating masses motivated by pier pressure and personal interest groups. All the best to you.

  8. @FHB Dreamer, serve your own interests and you first, always!

    Consider the same people with all this good news forgot to tell you that the GFC was about to fall from the sky. Many could see it coming except the experts. The same experts that speak in slogans, like the present China this-that and us slogans. No one directly relates what China does to our situation its’ all slogans. If we are currently in the midst of the biggest commodity-resource boom ever, yet where is all the money from this boom? Are we really the beneficiaries of this trade? Is it taken by investors first? Why aren’t we borrowing the money from this booming business, instead of the nearly $1.4 Trillion we’ve accummulated from foreign lenders? China is being used (whether true or not) as a (good?) reason for Australia’s current and future situation by the media.

    Remember, our well regulated and solid banking system was our saving grace from the GFC? Only now to realise that the NAB borrowed $4.5 Billion and Westpac $1 Billion from the US Federal Reserve secretly, in emergancy funds, or face the kaput possibility. Remember all those slogans the media and government were spewing forth? I’m thinking China could boom and Australia could still go down the dunny, its’ possible. No one really connects the dots.

    “IMF: Australian housing correction

  9. Thanks Calico, as you say, I just must not be pressured into buying into the media “property doubles every 7 years” manipulation.

  10. FHB

    If you think the China bust is likely then you will be screwed whether you buy now or later. The only problem is if you buy now and it happens, your house will plummet in value, your debt will remain and who knows what will happen to your job. So if I was to give you advice, I’d suggest you definitely do not buy. I think that even if the ponzi scheme is maintained for a further 5 years even 10, you would still be better off renting and waiting.

  11. Time to really stir the pot a bit……

    I was emailed a link the other day by a buddy who knows I am a pessimist through and through over the the coming crash, this link though even has me worried more than usual……. I don’t normally put links in to other financial blogs that comment on the state of the Australian economy, but this article needs to be looked at by everyone.

    It concerns China’s “Ghost Cities”, complete cities that have been built yet no humans actually inhabit them, China has built many of them despite denying it….

    “Now Business Insider has provided proof of China’s over-building and malinvestment with alarming satellite photos of entire cities laying vacant.”

    You seriously should checkout these satellite photos, they are scary, they also paint the ultimate end of this so called bullcrap 20 year resource boom hype that the media keep shoving down my throat. China has apparently built 64 million vacant homes, yep 64 million, that’s the equivalent of three Australias without any people.

    The entire scary story and loads of photos that defy China’s lies about over-supply can be viewed here:

    Of course when it finally implodes we here are finished, sorry to be so negative, but the amounts of borrowed money now invested around the globe are so great there can be no bailout possible this time and it’s all thanks to realestate.

    As for the IMF’s crap about a slow and controlled unwinding of prices, bahahahahahahahahahahaha, such is delusion.

    Tomek: There is no way this can go on for another 5 years…… it simply can’t.

    LBS: China can’t raise interest rates, not now….. they are sitting on a powder keg.

  12. However you look at it houses are overpriced. The Economist identified Australian house prices have diverged from historic trends by more than 60% making Australia the most overvalued housing market of all the countries analysed. Demographia found Australian house prices were the least affordable of the six countries examined based on a ratio of median house price to gross annual household income. Goldman Sachs declared Australian house prices are “25 to 35 per cent overvalued based on a measure of affordability that takes house prices, income, lending criteria and mortgage rates into account”. Jeremy Grantham, Chairman of GMO, stated that “the two (bubbles) that are (currently) outstanding are the UK and Australian housing bubbles” and that if those bubbles do not collapse, “it will be the first time in history that such a bubble has not broken”. “The U.K. and Australian housing bubbles may be unimportant to U.S. investors, but to bubble historians they look extraordinary. The U.K. event in particular has broken out of any previous mold. Despite the usual cry of “special case”, they will decline around 40%, back to trend, as was the case for the previous 32 bubbles.”

    Peak Debt Blog

  13. Challenging this are claims and reassurances that all is tracking well on the housing front. Jeremy Grantham legendary US investor and co-founder of global investment management firm GMO has cautioned that Australian and British housing markets are the last two bubbles left in the wake of the financial crisis.

  14. The Government has given large amounts of money to falsely fuel house prices,and using greed from banks to real estate agents to further the lie. However just as I noticed houses going up when taxi drivers cleaners all stating how much money they were making, now the very same people are talking about a collapse.
    Unfortunately prices are largely make believe,and since we have make believe castles:there is always a consequence. Lets get real and consider the future of people,housing should be affordable,and if we had more money to spend on entertaining eating out etc there is more jobs.I think we need to change the paradigm and not judge wealth on dwellings that inflate and cause untold harm to growing families and as a whole in society.

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