Joye: Housing “out-of-control freight train”

By Leith van Onselen

The AFR’s Chris Joye has this afternoon issued a stark warning that the Australian housing market is out-of-control:

The bottom line is that Australia’s housing boom is racing away like an out-of-control freight train…

Some folks argue that this boom is nothing to lose sleep over because it is limited to these two cities [Sydney and Melbourne]. Yet New South Wales and Victoria represent almost 60 per cent of Australia’s total population, and if you add in Queensland (where property values are rising at 2.3 times the rate of wages), the east coast accounts for 78 per cent of all residents…

To find comparable conditions you have to go all the way back to September 2009…

The current house price action is even more disconcerting. Over the three months to 27 February, 2015, national prices climbed 2.5 per cent, which represents annualised capital gains of 10.5 per cent. That’s more than four times wages growth, which is running at 2.5 per cent…

According to the RBA’s data, housing credit growth is also rising at 2.8 times the rate of wages, which is pushing Australia’s housing debt-to-income ratio, which was already at an all-time peak of 139 per cent in September, further into unchartered territory.

…the national house price-to-income ratio, is on my analysis now above its preceding high water-mark touched in 2007 and again in 2010.

Joye’s analysis comes on the back of a report released today by Barclay’s bank, which also claims that Australian housing is in uncharted territory:

“In both 2003 and 2010, the ratio of prices to incomes peaked not long after the Reserve Bank had started raising interest rates. This time the bank is cutting rates.”

“This suggests to us that valuations are likely to enter unchartered territory on the back of lower interest rates”.

“…house prices are expensive relative to incomes in almost every state”…

The warnings are coming thick and fast now.

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