Australian Property News

No housing bubble

Posted on Friday, June 18 2010 at 12:04 PM

The Real Estate Institute of Australia (REIA) has expressed its disagreement with the assertion made by Jeremy Grantham, chief strategist of global investment management firm GMO, that Australia is in the midst of an unmistakeable housing bubble.

REIA president David Airey says Australia is experiencing normal growth for house prices.

"If Australia was in the midst of a so-called housing bubble, then we have been there for some time," he says.

"REIA's data highlights that historically, median prices, compared to income, have been relatively stable for the past 10 years, taking into account normal fluctuations."

In a recently presented paper Reserve Bank of Australia deputy governor Ric Battellino addressed this issue.

"People feel that house prices in Australia are quite high and that's quite often because the ratio of house prices to income that are published for Australia tend to focus mainly on prices in the cities, and they are quite elevated," he said. "But if you look across the whole country, the ratio of house prices to income is not that different from most other countries."

The REIA says it's important to note that the price/income ratio doesn't entirely explain the state of house prices.

Demand fundamentals, such as interest rates and stock returns, also need to be considered as well as structural factors such as population growth and the current undersupply of housing.

"What is evident from the data recorded by REIA is that we are not seeing a bubble developing which will implode, but rather, the cyclical changes of the Australian housing market," says Airey.