A senior economist from Moody’s Analytics finds a “substantial divergence” between Australian states, particularly for Melbourne which is most at risk of correction.
Glenn Levine said the Australian housing market remains fairly valued relative to its long-run drivers of price: rents, incomes, and the user cost of capital.
"There is, however, substantial divergence between the states," he said, noting that he expects an increase on residential prices this year and another interest rate cut by midyear.
Moody’s noted that New South Wales prices are one of the highest in Australia and properties are marginally overvalued, as rents and incomes remain elevated.
The agency warned that if house prices continue to rise and income grows weak, the NSW market could drift further into overvalued territory.
NSW, Moody’s said, is also more sensitive to interest rate movement.
Despite these possibilities for NSW, Levine said the "biggest cause for concern" is still Victoria.
Moody’s reported that even if Victoria’s population is 22% smaller, housing approvals have always outpaced NSW’s figures.
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