Aussie home prices world's most-overpriced: surveySimon...

Aussie home prices world's most-overpriced: survey
Simon Johanson
March 4, 2011 - 2:06PM

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Australian house prices are 56 per cent overvalued, The Economist estimates - a higher rate than in Paris or Hong Kong.

Australian house prices are 56 per cent overvalued, The Economist estimates - a higher rate than in Paris or Hong Kong. Photo: Glenn Hunt

Australian house prices remain the most overvalued in the world, according to the latest quarterly ranking of global house prices by The Economist magazine.

Based on a historical gauge of home prices to rents between 1975-2010, the magazine estimates that Australian residences are 56 per cent over-valued, exceeding the 54 per cent over-priced rate in Hong Kong and 48 per cent in France.

?There may be good reasons for Australian prices to have risen so far, but people made similar, and ultimately incorrect, arguments for the run-up in prices in the West,? The Economist said in a statement accompanying the survey's release.
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The report may stoke debate on whether Australia's property market is a bubble waiting to pop.

The Economist's survey follows recent house price data released earlier this week which shows capital city value fell nationally by 1.6 per cent in January, a result of higher interest rates and floods in Queensland and Victoria deterring buyers.

Australia's city home values fell 1.6 per cent, seasonally adjusted, to $465,000 after rising 0.2 per cent in December, according to RP Data-Rismark figures. Outside of the major cities, they fell by 1.2 per cent in the month.

Countering the concerns over a bubble, however, is the on-going weakness in housing construction. Figures out yesterday showed new building approvals slumped in January by the most in more than eight years, although much of the drop may reflect disruption caused by widespread flooding in the month.

Setting the pace

The Economist also noted that while Australia's economy had outperformed most in the developed world in recent years, the recent surge in house prices may be hard to justify.

?In the years before the financial crisis, Australia's economy set a hard, fast pace for the rest of the Anglo-Saxon world,? the article in The Economist said.

?Its house prices rose faster than Britain's or America's (although Ireland's outstripped them all) and its current-account deficit gaped wider for longer. But its economy proved strong-livered."

"(Australian) house prices fell from March 2008 to March 2009 (as measured by the weighted average of the eight state capitals), then resumed their rise," the magazine said. "In the year to the first quarter of 2010, they jumped by 18.8 per cent!?

The Economist suggests the best way to limit the damage from a property bust is for regulators to exercise direct control over the amount of debt available to property owners and developers.

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