One of Australia’s top former government economists says the...

One of Australia’s top former government economists says the surging housing market is overheating, leaving the major banks vulnerable to a credit crunch if not checked by higher official interest rates.

There are also new signs the banking industry has significantly loosened lending standards to win customers in a market-share war that is contributing to rising property prices.

Quentin Grafton, the former head of the Australian Bureau of Resources and Energy Economics, will warn that last year’s 9 per cent national increase in property prices can’t be sustained.

“Should the house price growth spurt continue for much longer there will be an overshoot that will likely create an ‘overhang,’?” he will say in a speech to the Australian Agricultural and Resource Economics Society.


http://www.afr.com/p/national/banks_at_risk_from_overheating_property_8yIteU4nPWvTBQY0Lb49gI