Australian Homes Are Overvalued

According to the latest quarterly ranking of global house prices by The Economist Magazine, Australian house prices remain the most overvalued in the world. The report suggested that the property market might be a bubble waiting to burst.

Data released earlier last week showed that as a result of higher interest rates and the floods in Queensland and Victoria buyers had been discouraged from purchasing houses.

According to RP Data Rismark figures Australia's city home values fell by 1.6 per cent seasonally adjusted to $465,000 after rising 0.2 per cent in December. Outside the major cities they fell by 1.2 per cent in the month.

Figures released earlier last week showed that new building approvals had dropped in January by the most in more than eight years, although most of the drop could be due to the widespread flooding in Queensland and Victoria during that month.

The recent surge in house prices might be hard to justify even though Australia's economy had outperformed most in the developed world over the past few years.

The Economist pointed out that in the lead up to the financial crisis Australia's economy had set a precedent for the rest of the English speaking world to follow.

Australia's house prices rose faster than Britain's or America's. House prices fell from March 2008- March 2009, and then rose again. In the first quarter of 2010 they jumped by 18.8 per cent.

To minimise the damage from a property bust, regulators should be made more accountable for the amount of debt made available to property owners and developers.

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Published on March 3-th, 2011 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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