The IMF's epic chart book on Australian housing is out

The IMF released their latest report card on Australia and the Australian economy overnight. It was a report card full of a “can do better” sentiment, and one which highlights that while the economy is transitioning many risks remain.

China, the domestic economy and tighter global financial conditions all got a run. But it was the IMF’s detailed discussion of the state of Australian housing, and whether or not the sector is overvalued and what risks this poses to the economy, which took pride of place in their analysis.

The IMF ran a number of arguments and counter arguments as to the state of housing in Australia, concluding:

House prices in Australia have increased strongly over the past two decades, including by comparison internationally. Thus house prices are often argued to be overvalued. Many counter-arguments have been put forward for why such measures are flawed. We argue that house prices are moderately stronger than consistent with current economic fundamentals, but less than a comparison to historical or international averages would suggest.

Here are the awesome charts the IMF put together on the state of Australia’s housing market.

  • Slides 1-6 look at rapid house price growth
  • Slides 7-10 address fundamental measures of house valuation
  • Slides 11-16 look at macroeconomic and supply factors in house valuation
  • Slides 17-22 address financial stability and housing lending standards
  • Slides 23-28 look at the financial position of households

House price inflation has greatly exceeded income growth…

…and has exceeded the OECD average

Along with rising house prices, household debt has also increased to historic highs...

...and the house price-to-income ratio has risen.

Using the deviation from historical price-to-rent averages suggest overvaluation... does the price-to-income ratio.

Fundamentals model (Model B) is a relatively poor fit since 1970...

...but better explanatory power since 2000.

The user cost model is sensitive to alternative assumption regarding future expected house appreciation and interest rates.

The various approaches suggest that house prices are moderately stronger than economic fundamentals would suggest.

Nominal and real interest rates have declined sharply since the early 1990s...

...allowing the interest payments to income ratio to remain broadly stable and in line with comparators.

Lower interest rates have supported higher debt.

Australia is highly urbanized, with large share of population in Sydney and Melbourne.

Low construction activity in Sydney (NSW) in the 2000s have contributed... rapid house price increases in Sydney recently.

LTV standards are not deteriorating for owner-occupied houses...

...and low doc loans have declined, although interest only loans have been rising.

High LVR in investor housing has remained broadly stable...

...but interest-only loans dominates investor lending.

Non performing housing loans have remained very low...

...but the banking sector exposure to housing has risen, and the growth in investor loans has picked up.

Housing dominates household liabilities...

...but household wealth vastly exceeds debt.

Housing wealth dominates other assets and liabilities.

Debt is concentrated among high income households.

With low interest rates, household are building buffers...

...and the savings ratio remains high.

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