House prices are overvalued not undervalued, claims investment bank

by Julia Corderoy14 Jul 2015
Just after a senior figure from the Reserve Bank of Australia claimed that Australian house prices are undervalued, a leading investment bank has come out and claimed that Aussie house prices are actually overvalued.

Economic modelling conducted by Barclays’ chief economist for Australia, Kieran Davies – which compared the growing gap between household income and mortgage rates, as well as the ageing population and the working age of the population – found that house prices are actually overvalued by 12%, according to the Australian Financial Review.

This comes after RBA senior research manager Peter Tulip told the Australian Conference of Economists in Brisbane last week that the preliminary results from research he had co-authored showed that homes are in Australia are undervalued by 30%.

According to Davies’ research, higher income coupled with lower interest rates and a rapidly growing population has boosted house prices. The heated Sydney market has experienced 15% annualised growth in May and June, with prices up 10% since the start of the year. This has brought house and apartment prices to be almost 50% higher than pre-GFC prices. 

This rapid price hike becomes more significant when compared to global house price appreciation. According to Davies, global house prices are still 4% lower than pre-GFC prices.

In fact, the report reveals that Aussie house prices are now at the third most overvalued rate on record. Both 2003 and 1989 had even higher overvaluations with 2003 holding the record with a 22% overvaluation, followed by the 1989 rate of 14%.


  • by Patrick 14/07/2015 8:48:44 AM

    If Pre-GFC means 2007 that is 8 years ago. A 50% increase in 8 years is just 5.2% per annum, so about 2 to 3% real. This seems perfectly normal to me.

  • by Interest 14/07/2015 10:01:44 AM

    Patrick, a 5.2% annual increase on already overvalued prices shows the problem, not a perfectly normal situation. It's worth looking at a longer time scale, or comparing to income and other factors like the article discusses, as opposed to applying high school maths over an ideal time frame to suit your argument.

  • by Patrick 14/07/2015 10:58:01 AM

    My point is that uninformed journalists quote numbers like 50% increase because in isolation that number sounds big, which suits their agenda. I bought a 2 bedroom 1 bathroom unit in Dee Why in 1972 for $22,000. Similar properties in that suburb now sell for $500 to $600K a 2000% increase. But this is just an average 7.5% to 8.0% per annum over 43 years and I bet you would find this is about 2% to 3% real for the same period as it included the high inflation 70's & 80's. Housing is market determined, if they were unaffordable the prices would fall, this is inevitable. The moaning always comes from those who expect a free ride through life.