Australians are sitting on their cash
Home prices are weak but only because of subdued sentiment by buyers rather than fundamental problems in the market, according to a report on the health of the sector.
ANZ analysis suggests that home prices should continue to ‘‘drift sideways to slightly lower through 2012’’ as buyers’ attitudes towards housing remain cautious in the year ahead.
‘‘Economic fundamentals suggest this weaker momentum is being driven mainly by a shift in market sentiment rather than any significant forced liquidation of housing due to financial stress,’’ ANZ senior economist David Cannington writes in the report published today.
The housing market received a boost in November and December after the Reserve Bank cut interest rates twice. Yet the central bank lowered rates in response to the slowdown in borrowing along with increased worries about the health of the global economy, stemming from European debt crisis.
The report comes after median capital city home prices lost 3.7 per cent in the 11 months to November, according to home value tracking group RP Data-Rismark.
‘‘Despite the continued concerns about significant Australian house price overvaluation from some commentators, housing market fundamentals remain supportive,’’ Mr Cannington said.
Those fundamentals include the economy’s overall growth, low unemployment, and rising migration levels, the report said. Other factors include a shortage of available houses and the strong mortgage lending standards of the industry, he said.
The local housing market has long attracted critics who contend it is overpriced on a number of metrics.
The Economist magazine has called Australian real estate some of the most overpriced, while US investment fund GMO manager Jeremy Grantham said the market was in a bubble.
Most recently, US housing affordability group “Demographia” said Australia’s home were ''severely unaffordable'' in 2011, with a ratio of 5.6 times median house price to household income. A level of 3 times is considered ‘‘affordable’’ by historical standards.
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