House prices are overvalued by as much as a third in some cities, but experts warn they are unlikely to fall back to a fairer level.
But sharp price falls are unlikely, experts say, given expected rate cuts, immigration and a low unemployment rate.Houses in almost all Australian capitals look overvalued, new analysis shows, but experts say that does not mean prices are likely to fall back to a level considered fair value.
In Brisbane and Canberra they were overvalued by 33.5 per cent and 31.1 per cent respectively. Houses in Adelaide , Melbourne and Perth were also above fair value. “It’s only one guide, there’s no perfect measure to valuing any asset class, but a key approach in equity markets is to compare share prices to their underlying earnings,” Oliver said.
However, he stressed that was unlikely to happen, especially with interest rates tipped to ease at the end of this year. Lower rates typically meant higher house prices, he said.House prices could come back to a fair value if there were more interest rate rises, slower rate cuts or a sharp rise in unemployment, none of which were on the cards in the near future, Oliver said.
Westpac senior economist Matthew Hassan said though the measure did highlight that investors in Australia sought strong capital gains, it was important to compare rents with not only house prices, but unit prices. He said cash investors were not only thinking of capital gains but rental returns, particularly with housing shortages putting upward pressure on rents.Oliver said there had long been predictions that the Australian property market was in a bubble that would burst starting from the early 2000s, once interest rates were slashed after record highs in the 1990s.
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