Danger: why the Euro-crisis could sink the Aussie property market

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As the European debt crisis continues to make headlines around the globe, Australian property owners have been warned that the financial woes of our cousins on the other side of the world could sink Australian property values.

According to the latest OECD Economic Outlook, exacerbation of the sovereign debt crisis in Europe or a sharper-than-expected economic slowdown in China would have a detrimental effect on the Aussie economy.

“The structural adjustments currently underway are also generating substantial uncertainties that could weigh on employment, confidence and growth, with potential negative spillovers on house prices,” it adds.

On the subject of how much of a risk the European debt crisis really poses to the rest of the world, the report paints a worrying picture of the effect that it could have on the globe’s financial health.

“After some retrenchment at the end of last year, the crisis in the euro area has become more serious recently, and it remains the most important source of risk to the global economy,” says the report.

Worryingly, the OECD also points to Australia’s ratio of house prices to rents and incomes as a potential source of future price drops.

“In some countries, such as Canada, Belgium, France, Australia, Norway and Sweden, house prices are now very high relative to rents and incomes, pointing to possible price corrections at some point, or further corrections in those countries in which real house prices are already declining,” says the report.

Source: OECD Economic Outlook

But it’s not all bad news. European dangers aside, the OECD believes that “Australia can be expected to keep reaping the benefits of the mining boom”, adding that economic growth “should be around potential” in 2012 and 2013.

What are your thoughts on the future of Australia’s property market? Place your comments below, or join the debate on our property investment forum.

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