US Economist Predicts Australian Prices Could Fall up to 60pc

16 August 2011

A US economist has addressed the elephant in the room of the Australian housing market, saying that property in the country is up to 60% overvalued and predicting a crash of the magnitude seen in Australia 20 years ago. Some say that the Japanese market has never really recovered from that crash.


Meanwhile all we can get from bankers and analysts in Australia is predictions that the Reserve Bank will leave interest rates unchanged when it meets again next month.


According to Harry Dent there are real similarities between the Australian housing market now, and the Japanese housing market before the 1980's crash that saw values culled by 60%.


"That's what Australia could be looking at. I think prices will go back down to where they were in mid-2000, to where young families can start affording a house again - so that could prove a good thing," he said.


It is not the first time we have heard such predictions. The UN said that Australian property was among the world's most overvalued in 2008, and local economist Steve Keen famously predicted a decline of 40% over the coming 10-15 years -- a prediction made in 2007.


Unsurprisingly many analysts reject the claims. It has to be said, if property was overvalued before the financial crisis, then why didn't the crash happen along with property prices crashing in the rest of the world? Price in Australia grew strongly during the international financial crisis.


APM economist Andrew Wilson says the Australian market has remained one of the most resilient, and it would take a significant change for prices to plummet by that much.


"International investors last week showed a very significant leap of faith in the Australian sharemarket, and by extension, the Australian economy. There is a sense that Australia provides a safe haven in terms of residential property."

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