Is there a housing bubble?Posted: September 9, 2010
In an excellent post, finance whiz Christopher Joye explains that all those foreign hedge funds who are actively shorting Australian bank shares are themselves taking a bath.
He deflates the claim of “US investment legend” Jeremy Grantham that Australia’s housing market is a time bomb with house prices 7.5 times family incomes. The hedge funds believe the housing bubble will burst and threaten the balance sheets of Australian banks.
Mr Joye, who is the MD of Rismark International, points out that the home price to disposable income ratio in Australia was actually only 4.6 in the June quarter 2010, a figure generally in line with the average since 2003.
He points out that unlike other estimates:
Rismark’s national home price-to-disposable income ratio includes dwellings in all regions (ie, not just capital cities), all property types (ie, not just detached houses), and the ABS’s quarterly measure of average disposable household incomes (ie, not just average weekly earnings), which captures income earned from all areas (eg, labour and investment income) and reflects the fact that there is typically more than one income earner per household.
Here Mr Joye explains how the international hedge funds are taking another bath because they’ve bet that interest rates in Australia are going to fall.