REIA has conducted its own research into the so-called housing bubble in Australia, demonstrating why it does not exist and why the speculation of its presence is misinformed.
In the aftermath of the U.S. housing crisis, there has been speculation by some analysts as to whether or not Australia’s residential property market is experiencing a housing bubble, focusing their attention on the house price-to-income ratio in Australia and generally observing that it is high compared to other countries and, more importantly, that it is at levels similar to those in the US before prices crashed. Prompting such speculation is the observation that since 2003 the price-to-income ratio in Australia has been more than 40 per cent higher than the long term average. The most notable proponent of an imminent US style housing crash in Australia has been Jeremy Grantham, the chief investment strategist of Boston based fund manager GMO.
REIA's paper indicates that the house price-to-income ratio is not an accurate and sufficient indicator of housing overvaluation, and that other house-price determinant fundamentals need to be considered.
Further, the speculation ignores the role the U.S residential finance system played in the housing bubble and the differences in lending practices between Australia and the U.S.
Unlike the U.S, the regulatory provisions of the residential finance system in Australia results in the financial institutions behaving prudently and avoiding excessive risks.
To download the paper, click here. |
