IMF warns of dangers in Aussie property market

The International Monetary Fund has warned the Australian property market is at risk of “price overshooting”.

In a recent report on the Australian economy the IMF pointed to dangers to recent surges in property prices and rising investor expectations.

"Attention should be paid to the risk - as in any situation where asset price inflation accelerates - that a prolonged period of rapid price growth could give rise to expectations-driven, self-reinforcing demand dynamics and price overshooting," said the report.

If house prices were to drop suddenly it would have a serious impact on the overall economy, warned the IMF. A shock to household incomes or borrowing costs were suggested as possible triggers for a decline.

“The authorities would need to be prepared to take preventative actions if household credit growth, transactions volume, and prices accelerate. They have both the tools and experience to respond should these risks begin to emerge — following the large run up in house prices in the early 2000s, action by the RBA, Treasury, and APRA, through a combination of public communication, intensive supervision, and other actions led banks to take a more conservative approach to mortgage lending and helped cool the housing market without a sharp decline in prices.”

High levels of regulation in the banking sector would also help to limit the impact of a drop in prices, said the report.

"Households have built up large mortgage buffers over the last several years, the full recourse nature of lending provides an incentive for continued repayment, banks’ capital positions are strong, and lending standards are tightly enforced with a strong regulatory focus on the borrowers’ ability to service their loans. These features have contributed to the low level of non-performing mortgage loans sustained over the past decade."

After a prolonged period of sluggish growth, the IMF welcomed the recent revival of the property market as “encouraging” but added that “a broader pickup in activity in the non- mining services and tradable sectors is needed to underpin and sustain growth going forward”.

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  • Chris says on 26/11/2013 02:04:38 PM

    A no research at all, load of crap. Australia has the second highest per capita population increase of the G20 countries, just behind that of Saudi Arabia. We cannot construct quickly enough; that is why local and state governments can have high taxes/fees on new parcels of land. New construction is the highest price per given area; second hand properties just tag along. In older areas, the market sets the price level that people are prepared to pay - it is not artificially inflated as was Japan up until the early 1990s.

  • vipin says on 04/01/2014 04:03:25 PM

    This is a real scoop for everybody. This is an interesting blog page. I do hope you could do some more post. Good job!

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