IGNORE THE HYPE: BIS Says Australia's House Prices Have Actually Fallen

Photo: GETTY

Auctions were hot at the weekend as Australia’s spring property market ramps up, with some stellar results even surprising sales agents.

The sale of one Sydney house on the North Shore shocked the agent when the hammer went down at $2.95 million, well above the $2.6 million reserve. More on that here.

On Sunday an original fibro beach shack on a steep block in Newport, on Sydney’s Northern Beaches, sold for more than $800,000 after being listed for land value at about $600,000.

But according to the Bank For International Settlements, the world’s peak central banking authority, Australia’s house prices have actually fallen over the past three years and it’s suggesting they could drop further.

A sound warning for those jumping into the Spring market with some of the lowest interest rates in history under their belt. RBA Governor Glenn Stephens previously warned it is unlikely there will be further interest rate cuts which would inflate house prices. Meaning the only way for rates would be up.

In its quarterly financial review released this week, BIS said real house prices in Australia have declined by about 0.5 percent over the last year, even if in the past 12 months real prices are up 7.7 per cent.

“For a number of other countries current property prices are much higher than those implied by the historical relationship to rents,” BIS said.

“A priori, this could be a reason to expect a price correction in the future. Interestingly, some of these countries have experienced only moderate price growth recently (eg Canada, Norway and Sweden), or even price declines (eg Australia, Belgium and France).”

BIS has compared average house prices to historical rents over the past 15 years and found Australia’s ratio was 50 per cent above the long run average.

The central bank also found the price to income ratio was about 40 per cent above the average.

Here’s the chart. (Click to enlarge.)

Source: Bank For International Settlements.

The full report is here.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.