IMF Analysis: Australia Stands Out As Expensive Against A Rising Global Housing Market

The view from the pool (Photo: Supplied)

Australia’ housing market looks expensive against a rising global market, according to analysis by the International Monetary Fund (IMF).

The house-price-to-income and house-price-to-rent ratios are above historical averages and rank high against other developed countries.

Housing prices are edging up across the world. This is usually cause for celebration, a proof the global economy is on the mend and gathering strength.

However, the International Monetary Fund (IMF) has launched Global Housing Watch, a webpage dedicated to featuring its analysis on housing markets across the world.

House prices, which started to fall in 2006 after a decade-long boom, contributed to the GFC (Global Financial Crisis).

IMF deputy managing director Min Zhu says research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 banking crises.

He says:

“Understanding the drivers of house price cycles, and how to moderate these cycles, is important for economic stability. It is only by maintaining an open dialogue on these issues that we will gain a solid understanding of how policies can contain housing booms.”

Over the past year, 33 out of 51 countries in the Global House Price Index showed increases in house prices.

The IMF asks: Are these changes moving house prices closer to or further away from economic fundamentals?

House prices, rents and incomes should move together over the long run.

“If house prices and rents get way out of line, people would switch between buying and renting, eventually bringing the two in alignment,” the IMF says.

And in the long run, the price of houses can’t stray too far from people’s ability to afford them.

The IMF says the ratios of house prices to rents and incomes are often used as an initial check on whether house prices are out of line with economic fundamentals.

Australia, Belgium, Canada, Norway and Sweden ratios currently remain well above historical averages.

As this chart shows, Australia is fifth in the world:

The evidence on house-price-to-rent and house-price-to-income ratios, however, provides only a broad indication of housing market valuations.

The IMF says judgments about housing valuation also require supplementary information such as credit growth, household indebtedness, lender characteristics and the method of financing.

Australia’s house-price-to-income ratio is well above historical average and is second only to Belgium:

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