Case for housing bubble deemed 'misguided'

by Mackenzie McCarty29 Oct 2012

A leading economist has told one broker group that those who posit the existence of a housing bubble in Australia are 'misguided'.

Vow Financial brokers have been told by BT chief economist Chris Caton that the market cannot be compared simplistically with the US market, despite housing here being more expensive compared with disposable income.

“When other countries are thrown into the mix, the argument that we have a housing price bubble in Australia is much harder to sustain," Caton said.

“The fact is our housing prices are in broad alignment with many similar economies, so it’s my belief talk of a housing bubble is misplaced."

Caton added that mortgage brokers were likely to see lower rates and higher housing prices over the next 12 months.

“Although I’m not as bullish as some other economists on lower interest rates, I still expect at least one cut in the cash rate and possibly two as the Reserve Bank prepares for a downturn in mining,” he said.

Caton noted there remained major economic problems globally, but that he was optimistic about their impact in Australia.

“The Euro-zone remains an issue, but it’s more about contagion across Europe than a Greece in isolation," he said.

"It’s Italy and Spain we have to worry about. That said the trend in the long-term bond rates in those two countries in the past three months gives ground for some confidence."