AUSTRALIAN house prices are too high, according to Future Fund chairman Mr David Murray.
Mr. Murray declared on Sky News yesterday that Australia’s high house prices have made the local economy vulnerable due to world events such as the current crisis in Japan, the chance the U.S economy could experience a double dip recession and the continues woes of many European economies post GFC.
Mr. Murray said younger Australians, in particular, have been prepared to devote a large part of their incomes to loan repayments — even at a cost to their living circumstances.
The rush to buy a house has helped propel house prices higher, Mr. Murray believes.
“The relationship between house prices and incomes is uncomfortably high,” Mr Murray told Sky News.
Mr. Murray’s comments come hot on the heels of a recent report by The Economist stating that Australian house priced were the most over-priced in the world.
Mortgage companies also report that Australians are falling behind with their mortgage repayments. This situation could worsen with interest rate rises predicted later this year.
Mr Murray agreed that Australia’s obsession with home ownership was vulnerable if interest rates rose around the world, which in turn would prompt commodity prices to fall and leave the country exposed with high house prices.
He warned a fall in commodity prices would cut the income flowing into Australia, which in turn would reduce the wages of many Australian workers, making it more difficult for people to service home loans.
“Hopefully that won’t happen and we can work through it, but by any set of normal measures, house prices in Australia are high.”
The Fitch ratings agency report Australian mortgage arrears jumped dramatically in the fourth quarter of 2010 as borrowers failed to catch up on late repayments.
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