It is common knowledge that some 'experts' do believe that Australia has a property bubble with property prices needing to fall by anything between 20% to 30%.
To my understanding these 'experts' have been forming their opinion on the basis of graphs comparing the rates of property price increases for the last 10 years or so between Australia and some of the countries that experienced collapsing property prices in recent times like, for instance, Britain.
However, to the best of my knowledge, when arriving to their conclusions these 'experts' have never given due consideration to those economic factors that may apply only to Britain or Australia but not to both, factors such as, for instance, our proximity to Asia, a large source of external capital to which even FKP had access as exemplified by having Mulpha Australia as its number one shareholder; the scope for our Reserve Bank to further lower interest rates, etc, etc.
Another positive note is that a large body of opinion is now forming among the alpha economists that central bankers should replace targeting inflation, which they do by setting an annual target for the same of between 1,5% and 2%, with a nominal growth target for GDP of around 4,5% to 5%, guarantying in that way that at least through a combination of real and inflationary growth the economy will always be growing at around 5% in nominal terms. For instance, if real growth is -2% then the central banks should aim at 7% inflation while if real growth is 5% then they should aim at 0% inflation.
If this policy becomes implemented then during an economic downturn any fall in property prices would be automatically cushioned by a raise in inflationary expectations.
FKP Price at posting:
$1.83 Sentiment: Hold Disclosure: Held
