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%.