Overvalued housing price problem returns with vengeance: AMP Capital's Shane Oliver
Australian housing is overvalued, Shane Oliver, head of investment strategy and chief economist, AMP Capital, has long maintained.
But he doesn’t think it’s a bubble yet. However the acceleration in price gains means the risks are rising.
"Whilst real house price weakness through 2010 to 2012 saw this diminish, the problem has returned again with a vengeance," he wrote on the SMSF Adviser website.
Noting real house prices are 13% above their long-term trend and the ratio of house prices to income in Australia is 21% above its long-term average, he suggests Australia sits at the higher end of OECD countries.
"On the basis of the ratio of house prices to rents, adjusted for inflation relative to its long-term average, Australian housing is 27% overvalued."
Oliver suggests Australian house prices meet the overvaluation criteria for a bubble; but other criteria are less clear.
"Credit growth is a long way from bubble territory.
"Over the year to February, housing related credit grew 5.8%.
"This is up from recent lows, with 7.6% growth in credit for investors leading the charge but pretty tame compared to 2003/2004 when housing-related credit growth was running at 20% plus and 30% for investors.
"Related to this, we have yet to see much deterioration in bank lending standards.
"Similarly, the self-perpetuating exuberance that accompanies bubbles seems mostly absent at present."
Oliver points to four factors:
- House price strength is not broad-based. Prices in Sydney (plus 15.6% year-on-year) and Melbourne (plus 11.6% year-on-year) are very strong, yet in every other capital city they are up 5% or less;
- There has been only one year of strong gains, whereas the surge into 2003 ran for seven years;
- Australian’s don’t seem to be using their houses as ATMs at present (i.e. where mortgages are drawn down to fund consumer purchases and holidays); and
- We have yet to see property spruikers out in a big way.