stiglitz on house prices in australia, page-43

Monday, August 16, 2010
Deutsche and Goldman analysis on Aussie housing market

Here are the latest views of Deutsche and Goldman on Australia's housing market, as quoted in the Weekend AFR:

"Deutsche Bank economists Phil O’Donaghoe and Adam Boyton argue that the vulnerability of Australian housing is “overblown”…an analysis of the structural and cyclical underpinning of local housing leads Deutsche to conclude that it is not a bubble about to burst. Deutsche has “some confidence that an aggressive adjustment in house price-to-income ratio, via a sharp reduction in house prices, is unlikely to occur.” Rather, the house price-to-income ratio has been “adjusting steadily lower” since its 2003 peak. In fact Sydney, the nation’s biggest and by 2003 most overpriced market, has been deflating for six years. The supportive structural elements of Australian housing include full-recourse, variable interest rate loans and consumer protection laws that support diligent lender risk assessment. All were absent in the final years of the US boom when no- recourse loans on fixed rates that could not respond to monetary policy were given to people who could never afford them….Deutsche also noted that cyclical house price concerns are ebbing. House price growth slowed in the June quarter and auction clearance rates also fell from record highs. At the same time the “pulse in housing finance has moderated in line with rises in the cash rate”. “The stage of the housing cycle points to a steady moderation in price pressures,” Deutsche noted. Goldman Sachs economist Tim Toohey came to a similar conclusion in his latest analysis, which pointed to a “soft landing” and nothing to indicate a significant price correction."






http://christopherjoye.blogspot.com/2010/08/deutsche-and-goldman-analysis-on-aussie.html