Barclays clearly disagrees with the RBA’s senior research manager, Dr Peter Tulip, who last week claimed that Australian housing values were 30% undervalued and that owning a home is “now more attractive, relative to renting than it has been at any time in the past 30 years”.
Today, Barclays has released its own research estimating that Australian home values are currently 12% overvalued. From The AFR:
Barclays chief economist for Australia, Kieran Davies, compared a variety of factors including the growing gap between household income and mortgage rates, as well as the ageing population and the working age of the population, to develop a model that found property prices were above fair value…
The report found higher income coupled with lower interest rates and a rapidly growing population had boosted house prices, while the increasingly ageing population was holding back price growth slightly.
An overvaluation of 12 per cent is the third highest on record. Both 2003 and 1989 had even higher overvaluations: 2003 holds the record with a 22% overvaluation, followed by the 1989 rate of 14 per cent.
In any event, both claims about housing valuations will be tested over the next two years as commodity prices and the terms-of-trade continue to fall, the mining investment boom unwinds, the local car industry shutters, and dwelling construction first adds to supply then enters a downturn.
It remains my view that these economic headwinds, combined with macro-prudential tightening and stronger regulation of foreign investment, will bring about a sharp correction in home price from 2016-17.
