The 'housing supply shortage' argument for maintaining Australian overvalued house prices is not necessarily convincing in light of what has happened recently in the UK.
UK Commentary from a year ago [ http://www.channel4.com/news/articles/business_money/a+housing+market+crash/934047?intcmp=rss_news_itnnews ] seems similar to some also heard here in Australia recently: - especially along the lines of "America has a housing glut, whereas in the UK [Aust]there is a housing shortage"
Last Modified: 18 Oct 2007 By: Bridgid Nzekwu
House prices in the UK are overpriced by as much as 40 per cent and the bubble might burst - that's the stark warning by the International Monetary Fund.
The IMF says Britain is one of several European markets "vulnerable to a correction" and could experience the same downturn as has happened in the United States.
But do the experts here agree? Our money reporter Bridgid Nzekwu explains more in her report.
What kind of reaction has there been to IMF raising the possibility of a crash?
As you can imagine the C word fills the housing market with dread. No-one wants to entertain the idea of a crash. We've spoken to a number if the big players in the market and none of them, almost nobody, agrees with the IMF.
We've spoken to economists, mortgage lenders and the government and these are the kind of things they're saying: Halifax says it "expects growth to slow but no overall fall in prices."
The Royal Institute of Chartered Surveyors says "prices will remain stable due to supply shortages."
The Council of Mortgage Lenders says it is "not expecting falling prices"
And the treasury also says it believes the economy is so strong that it will "continue...to absorb shocks"
The IMF does say that important factors might prevent a housing market crash, mainly that we don't have enough houses for the people that are going after them. So why have the IMF talked about the UK housing market being "vulnerable to correction"?
They say what happened in the US is a pattern that the UK might follow.
What's happening in the US is that there are loads of houses flooding the market as mortgages have been given to people who really shouldn't have had them. These are mainly people with low income or debts, who can't afford to repay them and are having to sell up.
Those customers are known as subprime prime customers.
The IMF says houses in the UK are more overvalued than they were in the US and because of that there could be a problem.
One of the economists we spoke to, Ed Stansfield , who describes himself as one of the most pessimistic forecasters, didn't agree there would be a crash, but he did say the subprime UK market may be headed for trouble.
But the US market is quite different to the housing market here.
There are a number of big differences. In the US 20 per cent of the market is subprime, in the UK its only 8 per cent.
America has a housing glut, whereas in the UK there is a housing shortage.
But there are also similarities as well.
Before the slump, house prices in the US were rising faster than earnings and that's certainly happened here.
And the US has had a long period of rising interest rates, and of course we've had five in the last year.
The IMF does say that important factors might prevent a housing market crash, mainly that we don't have enough houses for the people that are going after them.
