Housing tipped for price implosion
I may as well keep banging this drum. This beat goes out to my friends Bill and Misha who just bought a second property. They hold the view that the worst that could happen is housing prices could plateau for a few years. For their sake I hope Edward Chancellor is wrong.
AUSTRALIA is in the midst of an unsustainable housing bubble that could burst at any time, warns the man who predicted the global credit bust of 2007.
Edward Chancellor, of US investment bank GMO, says the Australian economy is yet to emerge from the global financial crisis, despite the widespread belief it has escaped the worst of it ahead of the rest of the world.
Mr Chancellor, whose Crunch Time for Credit? was published in 2005, estimates Australian house prices are more than 50 per cent above their fair value — a once in 40-year event. ” If house prices were to revert to their historic long-term average (ratio of average price to average income) they would fall quite considerably,” he told The Australian.
He said prices would have to fall by more than a third to reach fair value — although some of this fall would be cushioned by income growth.
He described Australia’s banking system as a “cartel” and said luck rather than skill had allowed the Australian economy to fare better in the global financial crisis than other developed economies.
He attributed Australia’s “luck” to a comparative lack of competition among local banks, enabling them to avoid much of the reckless lending that occurred in the US, as well as the commodities recovery led by China.
“My view is Australia had a private sector credit boom just like the US and the UK and it had a real estate boom,” he said.
Housing tipped for price implosion | The Australian.
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