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House Prices Are Inflated

House Prices Are Inflated - Australia's house prices are overvalued by 5-10 per cent but any price correction is ''likely to be orderly'' and the result of income and rent rises rather than a collapse in prices, says the International Monetary Fund.

Analysis of Australian house prices by the IMF found cyclical factors such as low interest rates, the commodities boom and levels of disposable income contributed to inflated house prices, but their overvaluation appeared milder than in the past.

Australia's price-to-income ratios - the proportion of income spent on housing costs - was high, above 10-year averages by about 20 per cent at the end of June, an IMF working paper said.

House Prices Are Inflated

In Canada, similar ratios were at 15 per cent and in New Zealand 26 per cent.

The ratios were good indicators of overvaluation in countries such as Ireland that subsequently had a correction, the paper said.

By comparison, Ireland at the peak of its housing boom in 2006 had a price-to-income ratio of 40 per cent.

Since then real estate prices had declined by 35 per cent in Ireland and ratios fallen from their historic highs.

House Prices Are Inflated
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