The latest survey of global house prices conducted by the Economist magazine, show Australia has the most overvalued housing of the 20 countries it surveyed in the world.
According to the Economist, Australia’s housing bubble is now overvalued by 63.2 percent, having ballooned another 18.4 percent in the past year. Behind Australia is Hong Kong at 58.1 percent overvalued, and Spain 47.6 percent.
The Economist writes :
Our analysis of “fair value” in housing, which is based on comparing the current ratio of house prices to rents with its long-run average, suggests that China has less to worry about than the likes of Australia, which is again the most overvalued of the markets we track. That makes it all the more surprising that Australia’s central bank opted not to increase its benchmark interest rate this month.
On Tuesday, China raised interest rates by a quarter of a percent to help cool the countries property market. This rise is the first in three years.
http://www.nicholsoncartoons.com.au 25th Sep 2002
» Global house prices : Floor to ceiling – The Economist, October 21st 2010.
Where is AverageBloke to poo-poo this article?
This is so true, but if you listen to the Australian media everything is fine!
Does anyone know how we compare with the Japan Asset Bubble in 1991? We must be getting close?
Our bubble is pretty bad, although the media and the banks keep insisting that everything is fine. The government needs to step in and put some harsh regulations in place, but I don’t think that will happen as it wasn’t even part of the election campaign.
Pete:
yeah we are, HK is similar to us also pre: 1991.
The difference? We are leveraged far more than what Japan and HK where in the 1990’s, i.e we don’t own much of our property, our equity is pitiful. If houses prices slide hard, it will hit hard as everyone borrowed hard.
Total FUBAR
Hi Robert,
No I dont poo on articles that shed light on the worlds most over-valued housing market because it’s very true.
I only poo on articles claiming that a correction is just around the corner when none of the fundamental bubble stimulus (Negative Gearing, China Mining Boom, Predatory Lending etc etc) has changed.
Robert,
I would say AverageBloke will just say that the rest of the world is undervalued! lol and Australia is different from the rest of the world bla bla bla.
@averagebloke.
Negative gearing has changed, It has been capitalised into house prices to the point that its become worthless. Its implementation created the bubble, its all used up!
Consider if the government announced no more profits from negative gearing would be available?
It is apparent that is the case anyway, without goverment announcement… and this is the bubble popper, everything else is just noise.
Sorry nsw2206 I don’t quite understand what you mean in your first sentence. Perhaps you could explain it?
negative gearing is only good for when theres potential capital growth. I think its safe to assume we’re past that.
I think we all agree there is a bubble/ over valuation. The only thing left to discuss is when will correct (or if). If I had to guess we should start seeing something by mid next year?
What nsw2206 means is that negative gearing is intended to encourage new investors into the market. Without it, some of these will not enter the market because the yield is not high enough. However, this increase in number of investors drives prices up, and the yield becomes just as bad as it was before. As a result, these same investors that were once encouraged to invest are no longer willing/able. With few new investors into the market, there are no more capital gains, which is the only reason many “investors” are in the market at all.
AverageBloke do you understand that if house prices continue to decline then that makes Neg gearing a total joke and means that all you are doing is reducing the tax you are paying against an asset that is reducing in value week by week?
No investor will keep pumping money into a house for long when its value keeps falling infact Neg gearing can work to increase the rate that house prices will fall in just the same way that it help to push prices up in the first place just because investors all start to sell up at the same time to try and make money befor things drop in value too much. And keep in mind that Banks have got to a point now that they can not keep lending money out to people at cheap rates so higher interest rates are on the way and here to stay for some time, this makes it impossible for house prices to keep going up because without cheap money it all falls over.
With record listings, and the investors getting very keen to “realise the equity” in their excess housing portfolios, now is actually a very good time to be a renter – no risk of neg. equity, no worry about selling in what seems to be a “slightly oversupplied(!!) market”, and the increasingly big difference between the cost of renting and buying either in the bank, or invested in more productive, better yielding investments!
Always amusing to read the comments of the smug “Housing Investor Set” – usual stuff along the lines of “you dumb renters ensure I can enjoy my annyal luxury cruise” – you know the type (Michael of Sydney comes to mind!). By NOT buying into an already highly inflated market, but rather investing widely, I can’t say I’ve been able to enjoy an annual “Luxury Cruise”, but I CAN say that I WILL be taking very early retirement in the next 18 months, since the income from the investments (spare cash thanks to those “oh so smart” Landlords) will make it uneconomical for me to continue working.
Will I ever buy? Only if it becomes cheaper to buy than to rent. If not, I’ll just keep reinvesting and watch the “Property Investor Elite” squabble amongst themselves to get the last cent out of the final “greater fool”, and panic blindly at the hint of a 0.1% increase in base rate!!
RBA is between a rock and a hard place.
Those clowns know if they raise interest rates, the bubble will slowly leak, depressing their greatest creation ‘the property market’, therefore having a huge impact on Australian business and employment. How much business and employment in Australia is linked to property. The banks will raise them soon anyway!
If RBA doesn’t raise interest rates, they allow inflation to get out of control, pushing prices up and making day to day living for families and businesses more expensive, which will put big strain on paying off that big mortgage the bank flogged people.
Wages and salaries will try to defy inflation – but won’t.
I reckon the bubble has already burst yet the statiticians are a few months behind trying to fudge the figures for reporting. It’s only a matter of time before they cannot hide the facts.
When Lehman brothers failed did the world get any notice ?
Great job RBA – both you, the government and the banks will bring Australia into a new era of austerity.
Yet you don’t care because you have 5 houses a huge super fund for retirement and who is going to take it away from you ?
Bitter FHB dreamer
Money is not cheap anymore, therefore the CBA has already said they will increase rates if the reserve bank doesn’t. You will see investors manick and start to flood the markets trying to sell their properties before prices start declining.
All you prospective home buyers put on your negotiation boots because the balls in your court.
For the record. I know of smart Investors whom have been investing in property for many years and the slump we are experiencing won;t affect them. They see property as a long term capital investment and Negative Gearing helps them offset the tax on their incomes. So I disagree that a slump will affect the ‘seasoned and experienced’ investor set. However you are right that people who jumped into property investment for the first time in the last few yrs will get burnt.
Averagebloke, you are correct smart investors won’t be affected, but I feel sorry for people who bought property for investment in the past couple of years. In any case it must get a lot worse before it gets better.
What contributed to this housing bubble is the liberals encouraging ‘mum and dad’ investors to buy property, then reducing stamp duty. All of a sudden many baby boomers started buying investment properties and the price kept going up and up. Now the smart ones will start selling up and try to make some $$$.
It’s nice to see, that in order to afford to borrow at these record inflated prices many people are now telling complete lies about their financial situation :
http://www.theage.com.au/business/borrowers-downplay-debt-talk-up-pay-20101027-173az.html
The article then goes on to outline how three quaters of these borrows don’t know if they can meet their repayments in a years time…. what kind of idiots is this country full of…..
I honsetly don’t care what happens to these people anymore, I won’t shed a tear when they sit in the gutter with their furniture after a repo has occured, there is simply a limit on how much sympathy insanity really deserves.
“And in a sign that steep house price rises weren’t deterring would-be buyers, as many as 44 per cent said they intended to apply for credit to buy property in the next six months.
Three quarters of those surveyed said they were worried about their ability to repay their debts over the next year, a drop of 7 per cent from March.”
FHB,
Don’t lump the banks in with the RBA & government,
The banks want to raise interest rates…….
Talk about inflated prices. I am not sure what it’s like in other states, but in Sydney NSW prices are an absolute joke. people are paying +$750K for sub-standard 3 bdrm houses, which need a lot of work in areas like Canterbury, Sutherland and StGeorge, which are >20-25km from the city.
Even with prices on the verge of decline a) Realestate agents aren’t regulated enough and will continue to advertise inflated prices in a way, which plays with peoples emotions. (snakes that they are!) and b) There is always a gullible idiot whom will get sucked in and pay the inflated price.
I would sack both governments as neither party made any comment or acknowledgement on Australias housing problem, therefore in their eyes everything must be honky dory. I’ll vote for Bob Katter!
@Domenic,
Just a little while ago (over a month), a place in Sutherland (I can probably get the details too), sold for over $AUD 1 Million. The local Real Estate Agent (defn. that which is lower than a foot print), went off to Asia with beautiful pictures of the property and sold it. The new owner is now ready to kill someone cause not only is the house in bad shape, the house is right behind the Government Housing Commission units.
I’d pay no more than $320K to live in a big house in Sutherland, don’t get me wrong I really like the Sutherland Shire, but a dose of reality must first be swallowed.
@Romsey
Man! What an article. Though I didn’t need to be told, I know (very few) people personally in that situation. Despite them being long time friends I’m with you, BUGGER ‘EM!. But you know what the real bummer maybe (rhetorical)? We may fund a tax payer bailout package for these idiots!!! OK so it won’t be tax, just pay more on your energy bills, we can keep interest rates low too by doing that.
Is there anyway the prudent can disjoin themselves from this system?
BotRot,
I understand about your desire to disconnect from these fools who will eventually crash our economy, I myself have often wondered how I can distance my own financial efforts from the effects of these fools, but unless you go offshore it may be impossible. Only today on every media service from the papers to TV, I had to listen to all the little mortgage wingers complain about ANZ’s profit and how it is the bank’s fault they took out such a huge loan for such a small property.
Apparently, according to 70% of the population today, if the political morons regulate the financial system like the old days then realestate will become affordable again……. to me, it looks like the majority of the population are massive financial fools, but we all will have to pay some price.
I had dinner last night with a close friend of mine – who’s parents have been purchasing investment properties over the last 10 years in the outer North Western region of Melbourne.
They are approaching retirement, and went to visit a financial planner. The financial planner told them that they need to sell all their properties in the next 6 months because prices are already falling, and are going to dive fast.
I wonder how many investors are getting this same advice from their financial planners?
J Hill,
Your post jogged my memory about an article I read recently on Neil Jenman’s web site about investment realestate being sold around the fringes of Melbourne to unsophisticated investors…. well worth a read and take note of the photograph…..
Sorry, forgot to post the link….
http://www.jenman.com.au/news_alert.php?id=108