Simple metrics indicate house price levels not sustainable : Moody’s

Ratings agency Moodys has indicated Australia house prices are simply not sustainable based on simple metrics and has placed Australia’s mortgage insurance industry on negative watch.

Ilya Serov, lead analyst at Moody’s said “Capital city house prices have more than quadrupled and household debt has tripled since 1990. Simple metrics indicate that the current price levels are not sustainable,”. Moody’s believe the Eurozone crisis represents a material threat to Australia’s housing bubble which could lead to US style property crash.

The report from Moody’s follows similar concerns from the Economist magazine who indicate on a rent to price metric, Australian housing is 53 percent overvalued and 38 percent overvalued on a income to price metric. The economist warned the Australia, Belgium, Canada and France housing markets are now more overvalued than at the peak of the U.S. housing bubble.

ยป Australian house prices not sustainable, says Moody’s – Adelaide Now, 14th December 2011.


  1. I certainly hope so. I would love to buy property in Australia when we emigrate from the UK in a few months, but the lousy exchange rate coupled with high prices will make that dream nigh on impossible. I guess I’ll have to keep renting until the whole house of cards comes tumbling down. But as rental prices are based on a percentage of the property’s market sale value, even renting is super-expensive. The whole world’s gone mad!

  2. “The economist warned the Australia, Belgium, Canada and France housing markets are now more overvalued than at the peak of the U.S. housing bubble.”

    This is going to have huge consequences when it blows up. Australia will be worst than the US when the GFC finally hits the market here. KRudd shouldnt have kicked the can down the road. Australia will have to face a correction sooner or later.

  3. Rupert. Rental prices and that market are not connected to the sale price or notional value that may be achieved. Why do you consider the two as being connected?

  4. @JamesBond – It’s a formula estate agents use in the UK. One year’s rental on a property is equivalent to 5.5% of the value of said property. If Australian Real Estate agents don’t use that formula, then rental prices must be arbitrary, in which case, who decides the price? There has to be some correlation between property value and rental yields no? Otherwise the prices are plucked from the sky by dodgy estate agents. Maybe estate agents in Oz aren’t as unscrupulous and greedy as they are in the UK.

    If you know how a rental figure is arrived at, I would love to know.

  5. Welcome to Australia Rupert, The land of Negative gearing and unsustainable debt. Where mum and dad property investors purchase a property to be able to claim back more tax than your neighbours and workmates from the government (this is a definition of success in Australia), and hope to achieve capital growth that exceeds inflation, maintenance, depreciation and interest repayments. Rental Yields?????

  6. Has anybody seen that comic strip of an old decrepit guy sitting on a bench “waiting for ms. Right”? His whole life had been lost and wasted, waiting. Well, as much as I’ve been on this train of thought for many years now, I feel like that old guy, my life ruined and wasted, unable to really ‘live’ anywhere because my landlord dictates whether I have a pet or hang a picture. I’m told to find another place every year and uproot my family. Moving is one of the most stressful life events and I’ve been doing it annually. The real estate agent will tell you nothing about the landlords’ circumstances, and your longevity in a place. And…if you even dare ask too many questions, you will be instantly replaced by the next desperately panting puppy in the queue. Surely life matters more… I’m so sick of waiting for common sense, while life passes me by. I’m so sick of renting! I feel like surrendering and just buying whatever overpriced rubbish I can afford, which makes all my sacrifice in vein. But I’m sick of this. And I wonder if the stupidity will continue for another decade – or three – by which time I might be dead. Who knows what stimulus plan will next veil the reality. Who knows when people will stop being sheeples.

  7. Rupert. Having seen Paul’s response I cannot add to it. I for one, rent a house in Perth that to buy would be at least three times the more in terms of capital and interest on a considerable deposit plus stamp duty for the privilege of buying such an ‘asset’.

    The Aussie way is a mantra about purchasing property for many it appears but be careful what you read as there is a lot more BS over property out here than there is in the UK. I’m a pom so can make the comparison.

  8. @Paul – Thanks for the welcome Paul, but we’re not there yet – still in the UK. I hear what you’re saying, and it’s exactly the same in England, but you guys have got great weather. If you’re gonna be in debt, you might swell live by the beach, eh? House Price Crash here we come!

    @Rocket – I hope you’re right. It’s just a shame there are so many poorly constructed and badly designed dumps around. All the good houses cost a fortune!

  9. Rupert,
    Rental properties used to get around 5-7% return in the 1990s. Now they are getting around 2-3%. That is because property prices quadrupled between 1990-2010. Property prices have fallen 10-15% in the past 12 months in Melbourne. The number of properties for sale had DOUBLED in the same time!! The crash has begun. I am a professional astrologer. Google Douglas Parker Astrologer. The world is going into Depression.

  10. Nice to hear some good news :). Rupert, I’ve heard that the AUD is likely to lose value over the next few months – Westpac were just saying it could be 93c (against the USD) by middle of 2012.

    On house price to rent ratio, there’s no firm ratio. The price of renting is set by supply/demand (i.e. landlords charge as much as possible to the best tenants possible and tenants pay as little as possible for the best place possible). There may be some rule of thumb like in the UK with the 5.5%. In Australia the usual gross yield at the moment is well below 5.5%. In Brisbane this seems to e 4.0 to 5.5% but I hear in Melbourne, it’s much lower 3-4%. Of course in Brisbane, house prices have fallen more. The ratio is likely to change over time. A good gross rental yield used to be 8-9% back in the 80s. The boom in house prices has pushed down yields as rents haven’t risen at the same rate as house prices. In my view, both house prices and rents will decrease over time but house prices will move down more dramatically.

  11. There is never any ratio to set house prices or rents.

    It’s value is set buy the market.

    For the last 10 years, the market was turbo charged by cheap, accessible credit, poor investment guidance, confidence provided by strong employment and social mania in the belief of ever rising house prices.

    Once the market is snuffed by inaccessible credit, shattered confidence, the resulting poor investment guidance and a collective fear of debt…..well, check out Japan’s property market for a clear picture of the results.

    If only there was a ratio for what things are worth…….EG:.I earned the company $XXXX of extra dollars, and the ratio says I earn this % of turnover, boss, give me a rise…..Yeah, it doesn’t work like that…..The market rules.

    Bring on march, thats where the panic will be, IMHO.

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