Australia 'has an unmistakable housing bubble'

Thursday 17 June 2010

Article by Mozo

Australia is in the midst of a housing bubble that may soon be impossible to sustain, an expert has claimed.

Jeremy Grantham, a US investor and co-founder of global investment management firm GMO, told the Australian that house prices in the country need to come down by 42 per cent for there to be a return to sustainable, long-term pricing.

"The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 [times]," he commented.

"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be."

Mr Grantham claimed that the Australian housing market is now a "time bomb" that is sure to burst when rising interest rates make property buying unaffordable.

Rising house prices have increased the need for Aussies to compare home loans in search of better options. This week, RAMS Home Loans opened up the possibility of a pricing war with other mortgage suppliers after it cut its two-year fixed home loan rate by 0.31 per cent.

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