Australian property bubble argument misguided: BT Group

The notion of an Australian property housing bubble is misguided according to BT Financial Group chief economist Chris Caton.

Caton describes as simplistic the comparison with US housing market and the argument that Australian housing prices are overpriced when measured in terms of disposable income.

“When other countries are thrown into the mix, the argument that we have a housing price bubble in Australia is much harder to sustain,” Caton said at a conference of mortgage brokers in Thailand.

“The fact is our housing prices are in broad alignment with many similar economies, so it’s my belief talk of a housing bubble is misplaced.”

Caton also predicts lower rates and higher housing prices over the next 12 months.

“Although I’m not as bullish as some other economists on lower interest rates, I still expect at least one cut in the cash rate and possibly two as the Reserve Bank prepares for a downturn in mining.”

He says he expects a pick-up for housing credit and house prices over the next year, led by WA.

“I suspect we will be back at next year’s conference and housing prices will have risen over the past 12 months.”

Caton says while there are major economic problems in the world, he think there will be minimal impact on Australia.

“The Euro-zone remains an issue, but it’s more about contagion across Europe than a Greece in isolation. Greece per se is not an issue; its economy is small. It’s Italy and Spain we have to worry about. That said the trend in the long-term bond rate in those two countries in the past three months gives ground for some confidence.”

“The US is facing an inadvertent massive tightening of fiscal policy with tax increases and spending cuts totalling close to 5% of GDP in early 2013 (the so-called fiscal cliff) because of past policy decisions. Were this to happen, the US would be pushed back into recession, but common-sense should prevail.”

He says China remains a worry “but only because it’s been such a good news story for Australia”.

“The commodity boom we have enjoyed because of China’s strong growth is unlikely to continue. But we will still enjoy healthy terms of trade with China.”

BT is the wealth management arm of The Westpac Group and has been operating since 1969.

Alistair Walsh

Alistair Walsh

Deutsche Welle online reporter

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