Bearish housing correction looms while Sydney faces bubble question: Alliance Bernstein

There is a "clear risk" of house prices falling in Australia, according to an international asset management company.

In a recent report on Australia's economy, senior economist for Alliance Bernstein, Guy Bruten, noted a "looming housing correction" amid post-commodity-boom conditions.

"Yes, people are still talking about the upswing phase, but we suspect that will change in the coming months," Bruten wrote.

"There's an obvious impact on the Western Australian housing sector. Perth has already been underperforming, relative to Sydney at least, after outperforming dramatically through the commodity-boom phase.

"More of that is likely to come."

Source: Alliance Bernstein

In the report, titled Australia: Still Fundamentally Bearish, Bruten also noted Sydney's 30% price growth over the past two years, referring to the "boom (bubble?) in Sydney's prices".

"Much of that reflect investor activity – in aggregate, lending growth to investors is running at 10% year on year."

"But with signs of oversupply starting to emerge in pockets of the market, and with APRA (the prudential regulator) starting to offer 'guidance' – a weak form of macroprudential policy – one wonders how long this can continue.

"There's a clear risk that falling house prices may be the next phase in the post-commodity-boom adjustment story."

Source: Alliance Bernstein

Despite positive employment figures released last week, Alliance Bernstein is still forecasting an interest rate. Bruten, like many local economists, raised the issue of "noise" in the Australian Bureau of Statistic's labour force figures, writing: "When we dig down into the detail, it's hard to discern a shift in trend."

Of Australia's unemployment rates by region, he noted "not much change", writing that: "mining is still deteriorating; manufacturing is struggling, too; and the more diversified parts of the country are doing better."

He attributed New South Wales' relatively strong economic performance, in part, to its housing market.

Alliance Bernstein is an asset management firm with US$474 billion (A$580 billion) in assets under management. It is listed on the New York stock exchange.

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