Unsustainable Housing Bubble in Australia, Expert Warns

EDWARD Chancellor, the man who predicted the global credit led economic downturn in 2007, has referred to Australia as being amidst an “unsustainable housing bubble” with values potentially more than 50 per cent above their fair market value.

Mr Chancellor, who is employed by US investment bank GMO, said Australia is in the middle of a once-in-a-40 year event, adding the bubble could burst at any time.

“If house prices were to revert to their historic long-term average (ratio of average price to average income) they would fall quite considerably,” Mr Chancellor said of values.

He estimated prices would have to fall by more than a third to reach “fair value”.

Mr Chancellor identified first home buyers, sensitive to interest rate rises, as a key area of concern moving forward.

“Given the great growth in private sector credit and the vulnerability of the housing market...Australia is not out of the woods. It hasn’t even entered the woods,” Mr Chancellor is reported as saying in The Australian.

He said Australia’s banks acted as a cartel during the economic downturn, adding that luck, rather than skill, allowed the Australian economy to fare better than other countries.

Banks were able to avoid much of the reckless lending that occurred in the US, he said.