irrational exuberance in the property market

The Australian has picked up the story from the Economist.

I just love the comments from the interviewed property analysts and real estate agents.....typical.

Reading through the papers today it seems that these type of people still think property is undervalued in Melbourne....might have to take their word for it.

Home prices crash tipped
By Kate Jones
June 02, 2003
FIRST home buyers can rub their hands with glee after an influential report predicted the Melbourne property bubble is about to burst.

House values could be slashed by 20 per cent in the next few years, according to the prominent finance journal The Economist.

It means Melbourne's median house price of $347,000 could fall by almost $70,000.

New home buyers waiting for a reprieve in expensive house prices would be the big winners from any price cut.

The report reveals that Australia's average house price is inflated by 31 per cent - putting the property market out of reach for many.

The Economist's report says the property bubble will burst in markets across the world.

Australia is listed among five countries, including the US and Britain, where property prices are expected to drop.

With an 18 per cent rise, Australia joined Britain, at 25 per cent, in recording the biggest jumps in house prices last year.

Sellers and homeowners who have reaped thousands from Melbourne's property boom, would experience a severe loss in capital growth.

But investors will be hardest hit when the bubble burst, the report says.

"If house prices start falling, owner-occupiers who can afford to meet their interest payments will stay put, but investors are more likely to sell - especially if rents do not cover their interest payments - putting further downward pressure on prices," it says.

The Economist's gloomy predictions coincided with new Housing Industry Association data showing the sale of new homes across Australia continued to slow last month, dropping 7 per cent.

The magazine said the recent rapid house price inflation in many countries was clearly unsustainable, and at the very least house buyers betting on further rapid price gains would be disappointed.

"Worse, there is a risk that house prices will take such a tumble that they take whole economies with them," it said.

But local property analysts and real estate agents say there is little chance of a price decrease.

Real Estate Institute of Victoria chief executive Enzo Raimondo said Melbourne's market had cooled, but prices had remained strong.

"The economic climate at the moment doesn't suggest there is going to be a serious decline in property prices," Mr Raimondo said.

"I doubt whether house prices will drop by 20 per cent at all, certainly not in the inner or middle suburbs of Melbourne."

Hocking Stuart managing director Greg Hocking said Australia's healthy economy would ensure a strong property market.

"There doesn't seem to be any speed humps in the foreseeable future," Mr Hocking said.

- with AAP