Aussie house prices vulnerable to world shocks

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The chairman of the Future Fund has warned that house prices could be vulnerable to global economic shocks.

David Murray has warned that Australia is potentially vulnerable to a situation where "conditions around the world tighten" and commodity prices fall.

He also expressed his belief that property prices were "uncomfortably high" compared to the rest of the world.

"The relationship between house prices and incomes in Australia is uncomfortably high versus the rest of the world," he said. "Part of it is demographic, because employment is strong and people, young people in particular, are prepared to make trade offs in their family circumstances to buy a home and make very rapid reductions in the principal on their loan to secure ownership."

Murray's comments follow the publication of a report in the Economist which called Australian property prices the most overvalued in the developed world. The magazine argued that prices currently sit at 56% above the long-term average recorded between 1975 and 2010. However, the magazine's methodology has been questioned by a number of commentators, who have also highlighted the Australia's strong immigration figures and dwelling undersupply as factors that will continue to sustain the market.

RBA governor Glenn Stevens has also added his voice to the debate, saying that he is "not terribly troubled" about the level of house prices in Australia, and that the ratio of income to house prices in Australia was "not exceptional by global standards".

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