Sunday, November 10, 2013

Property warning from an unusual source

A warning on property and banks this weekend from an unusual source:  Housing, banks at risk of significant overvaluation
Two markets are at risk of significant overvaluation – Australia’s $4 trillion housing sector and the $405 billion big banks that furnish most of the funding we use to buy homes.
Two of the majors, Commonwealth Bank of Australia and Westpac, are worth more than $100 billion each – more than global icons such as McDonald’s and American Express. Amazingly, CBA’s market capitalisation is loftier than the world’s largest chip manufacturer, Intel.
Unusual because Joye has been closely aligned with the property sector and was part of the RP Data Rismark group. Generally he has more usually been an advocate against claims that Australian property is a bubble, or overvalued based on price to income metrics.
But here is what worries me. I estimate that Australia’s price-to-income ratio will be back up around 4.1 times by the end of December. If the market keeps running at its current pace while disposable incomes track wages, the price-to-income ratio will exceed its all-time high by June next year.
The bottom line is that we may be only six months away from Australia’s housing ­market being more expensive than it ever has been. That should give all of us pause.
Source: Financial Review

Does this conflict with recent positive assessments of the Cairns property market? Not necessarily. FNQ is a comparatively small market which has mostly performed poorly in recent years and has historically not always aligned closely with the major capitals which drive the national metrics.

Update: A recent graph tweeted from David Scutt @David_Scutt may also be interesting in context of current property debates:

Update: A recent graph tweeted from @

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