Australia house prices "overvalued"

Sydney Harbour Photo: Wikimedia Commons

Australian house prices are "overvalued", says Barclays, following double-digit growth in the past year.

The investment bank has compared a range of factors, from the gap between household income and mortgage rates to the population age and working age, to determine a fair value for real estate. At present, Barclays Chief Economist Kieran Davies says that Australian homes are 12 per cent overvalued.

"As we have long remarked, house prices have appeared expensive relative to both household incomes and rents for more than a decade now," Mr. Davies told the Sydney Morning Herald.

According to Barclays, the country has seen house prices rise 15 per cent year-on-year in June 2015, with prices up 10 per cent since January 2015 alone. Now, house and apartment prices are almost 50 per cent above their pre-financial crisis levels.

The figures are backed up by recent data from CoreLogic RP Data, which found that dwelling values rose 2 per cent over the June quarter and 9.8 per cent higher over the year. The rate of capital gain was slightly higher over the second half of the year (5.1 per cent) compared with the first half (4.5 per cent) highlighting that the housing market has gathered some momentum during 2015.

CoreLogic RP Data's head of research, Tim Lawless, believes the interest rates cuts in February and May have contributed in pushing capital gains higher.

"With the RBA cutting the cash rate in February, there was an instant buyer reaction across the Sydney and Melbourne housing markets where auction clearance rates surged back to levels not seen since 2009, capital gains once again accelerated and we are now seeing Sydney and Melbourne homes selling in record time; Sydney homes are selling in just 26 days and Melbourne homes are selling in 32 days."

The housing market, though, has seen varied performance across different markets: while Sydney and Melbourne have seen dwelling values increase by 16.2 per cent and 10.2 per cent over the financial year respectively, every other capital city has seen growth of less than 5 per cent and dwelling values are down over the year in Darwin (2.9 per cent) and Perth (0.9 per cent).

Kieran Davies added: "The problem with these simple valuation measures is that the recent experience is unprecedented and it is not clear to us when they will correct, or even if they will fully revert to their long-term averages."