IMF: Australia Ranks 3rd Highest House Price-to-Income Global Ratio

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A row of newly-constructed homes selling for over one million dollars each are pictured in the new Sydney suburb of Greenhills Beach, May 13, 2014.
A row of newly-constructed homes selling for over one million dollars each are pictured in the new Sydney suburb of Greenhills Beach, May 13, 2014. REUTERS

After Belgium and Canada, Australia has ranked the third highest house price-to-income ratio worldwide, according to the International Monetary Fund (IMF). 

IMF Global Housing Watch cited the house prices continue to be too pricey for the household income not just in Australia but also in many countries.  This indicator was one of the metrics that the Global Housing Watch tracks in the housing markets around the world. The data generated from the quarterly update of the group was used to assess house valuations.

Other metrics included were global house price index, house prices across the world and house price-to-rent ratio. Of the 33 global countries that have increased the house prices, Australia is one of those countries with very significant increase. In terms of house price-to-rent ratio, Australia also ranks fifth in the countries where house prices are misaligned with rent.

IMF data also revealed Australia is one the countries where house price-to-income ratio and house price-to-rent ratio are way above the historical averages. These ratios are often used as preliminary checks to determine if the house prices already go overboard with the economic fundamentals.

IMF Deputy Managing Director Min Zhu explained the data generated from the IMF Global Housing Watch in a blog at iMFdirect. He said the house-price-to-income ratio is only a general indicator of the housing market. There is a need to gather supplementary information like growth of credit, indebtedness of the household, characteristics of the lender and method of financing.

"As part of its regular reports on economic conditions in countries-the so-called Article IV reports-IMF country teams often provide an assessment of housing markets, and are increasingly paying attention to credit growth, along with several other country-specific features of the housing market. In some cases, this more detailed look suggests much more modest overvaluation than indicated by the house price to income and house price to rent ratios," Zhu noted.

The director also emphasized the importance of housing sector in the country's economy.

He added while the current increase in house prices is a good development, there is also a need to be cautious against another unsustainable boom in the housing market.

Based on IMF research, boom-bust patterns in house prices heralded over two-thirds of the current 50 systemic crisis in the banking sector.

To see the graphical representation of the house price-to-income ratio and other IMF data, please click here. 

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