With an annual growth rate of 12 per cent over the past three years, prices of homes in San Francisco, Vancouver, Sydney, and Shanghai have increased "twice the national pace," according to a report by The Economist.
By measuring the relationship between prices and disposable income, as well as between prices and rents, The Economist concluded that housing in Australia, Canada, and the United Kingdom are more than 40 per cent overvalued. The Australian housing market, in particular, has been overvalued for more than a decade, leading to predictions of an impending market crash.
"The risk is certainly there. I would see the combination of very expensive property combined with very high household debt ratios as Australia's Achilles' heel," said AMP Capital chief economist Shane Oliver.
However, Oliver said that there is only about 20 per cent chance of a full-blown property crash, wherein prices could fall by as much as 50 per cent. What he sees is a fall-off of about five to ten per cent in Sydney and Melbourne over the next two years, followed by a fluctuation of prices in the next decade.
Latest data shows that the Australian housing market is already slowing down as it is at its slowest growth pace in 31 months. Still, there is no huge price dip in the near future, and underperforming capitals like Brisbane, Hobart, and Canberra might even see some growth acceleration in 2017.
Still, the Australian housing market is so out of reach of young homeowners that Oliver warns an entire generation is now hoping for a property crash just to be able to afford them. "Some of them are hoping there will be a crash because they feel they've been disenfranchised," he said.
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