property bubble confirmed -finally, page-2

Housing prices tipped to fall 20pc



SYDNEY

HOUSE prices in Australia are set to tumble 20 per cent over the next few years as a worldwide property bubble bursts, influential international finance journal The Economist predicts.

The Economist said housing sectors in several countries were overvalued with Australia, where house prices were over-inflated by almost one third, receiving special mention.

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

The Economist 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.

The Economist said booming house prices had inflated the property price bubbles in several countries, notably Australia, America, Britain, Ireland, the Netherlands and Spain.

"Within the next year or so those bubbles are likely to burst, leading to falls in average real house prices of 15-20 per cent in America and 30 per cent or more elsewhere over the next few years, in line with average price declines during past housing market busts," the journal said.

"This time, however, with inflation so low, house prices will fall more sharply in money terms than they did in the past."

In Australia, where average house prices were overvalued by 31 per cent, that meant prices could fall by 20 per cent over the next four years, The Economist said.

Australia (18 per cent) joined Britain (25 per cent) in recording the biggest jumps in house prices last year.

Local house prices are up 83 per cent in nominal terms since 1995 and by 53 per cent in real terms, after adjusting for inflation.

The magazine said investors, who accounted for more than 40 per cent of all housing loans in Australia last year, would be hardest hit when the bubble burst.

"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."

The Economist said anecdotal evidence in Sydney and London suggested that some owner-occupiers were selling and renting to lock in a profit before prices fell.

But Commonwealth Securities senior analyst Craig James said there would have to be a strong driver for there to be a housing bust in the owner occupied market, which did not appear to be on the horizon.

"There is just no reason why people who own their own homes or who are buying their own homes would need to put that onto the market," he said.

Mr James said there was a degree of oversupply in some investor housing markets such as inner city units and apartments in Sydney and Melbourne.

"Again there would have to be a major driver such as a share market crash or higher interest rates to force people to put their houses on the market and we just don't see that," he said.

He added that any slow down would be "very, very patchy."




-AAP