Australia's housing among the four riskiest markets in the world, Oxford Economics

Australia's housing among the four riskiest markets in the world, Oxford Economics
Australia's housing among the four riskiest markets in the world, Oxford Economics

Australia's housing is among the four riskiest markets in the world, according to Oxford Economics.

It has a strong prospect of falling prices posing a threat to economic activity, the research paper noted

The housing market dangers were "especially acute" in Sweden, Australia, Canada and Hong Kong, according to Oxford.

Weighing up a range of risk factors, including housing valuations compared to long-term averages, it noted all four valuations were very elevated.

It noted there has been a lengthy housing boom, debt levels were high and there was a significant share of floating rate debt, Oxford's lead economist Adam Slater wrote in a research note.

The risks were relatively limited in key markets including the US, Germany, France, China and Japan.

Overall edian OECD house price valuations are below the 2006-07 peak but are higher for the risky markets, according to Oxford.

"Historical experience suggests that high valuations – of 125 per cent or more of the long-term average – point to a 60 per cent chance of prices falling over the next five years," Mr Slater wrote.
 
"This matters because house prices can have a big impact on economic activity, even if the link may have loosened in the G7 in recent years.

"Looking across a range of housing risk indicators, property market dangers look concentrated in a number of smaller advanced economies and are less severe for the largest economies."

On a valuation index where the long-term average is 100, Australian housing is at 160, while Sweden is at 165, Canada at 173 and Hong Kong at 203.

Slater wrote rising rates are not strictly necessary for prices to start falling (i.e. Sweden) and in the context of high valuations and debt, even modest increases (i.e. Canada and Hong Kong) "could be a problem."
 
Oxford's assessment suggest Australian house prices have another risk factor, with an 82 per cent share of its mortgages held on floating rates.
Tags: 
Housing Collapse Oxford Economics

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