Aussie houses are world’s most overpriced
Australian homes remain the most overvalued in the world, giving fresh life to the debate over whether the nation’s housing market is a bubble.
The economic journal of the record, The Economist, says Australian housing is overpriced by 56 per cent.
Morgan Stanley global strategist Gerard Minack has been arguing the case for some time and thinks a bubble started to inflate in the late 1990s.
"We’ve had 20 years where the Australian consumers have been willing to borrow more to buy an asset that they believe always goes up in value - the classic sign of an asset bubble," he said.
Paul Higgins: I have thought this for along time and the telling remark is that if people buy assets because they believe they will go up in price but the economic returns are not there then that is a bubble. I was concerned that when there was a bump in the road we would have real problems here in Australia with people reducing spending that had been premised on increasing housing loans and credit card debt. That would have been a triple whammy with people having reduced capacity to spend, interest taking more of a grab, and then people saving more to reduce their risk. That would have hit house prices hard. That did not happen through the global financial crisis. In the end people will pay for an asset like a house what they have to and in the final analysis that is determined by their financial capacity to pay - a function of income, interest rates, and availability of money. I don’t see that combination changing too much in the near future despite rising food and energy costs although a flattening out of the house market is highly likely in my view due to those factors.
Full Story: ABC News