IMF warns of housing market problems for Australia

The International Monetary Fund (MF) is warning Australian banks that they see the Australian housing market as still being overheated by about 20 to 30 percent. As such there is a risk that it would not take much to prick the bubble.

[The above image links to the 9 News Finance article]

This is the third similar warning to Australian banks from the IMF this year.

The view is that the Australian housing market is currently defying gravity. This being the case then the question is how long can it do so; and can it defy gravity long enough for the threat to go away—which could be as long as six years.

As part of the waring the IMF are urging Australian banks to ensure all loans are secured by a suitable capital deposit and that full due diligence is undertaken is assessing the value of properties for which loans are provided.

This is so that if there is a bubble burst—as many of the experts are expecting (see right)—then the banks will have sufficient room in their capital deposits such they they do not lose money.

The concern of the IMF is that if banks are accepting 10 or 20 percent deposits to secure housing loans and the market does correct by 30 percent, then the banks will be underwater with those loans. The recommendation is that banks work to move towards more suitable deposits so that they are not as exposed if the predicted further correction in house prices does take place.

[The above image links to the article at the ‘Long-Term Investor’ site]

For many people the signals from the experts are very confusing because the Australian-wide real estate industry continues to run upbeat promotions almost every month encouraging people to get into the real estate market now—before it starts going back up (and they miss out).

Who is right? Tough question. And if you pick the wrong answer you might lose a lot of cash.

The fact that the professional big-money investors such as superannuation funds, and overseas banks and investors, are staying away from Australian domestic real estate, and many are actively reducing their real estate portfolios, is enough for me to think twice. I have been thinking about buying something ‘down south’ in the Bunbury/Australind area where I now work—where prices have already fallen at least 15 percent in the last five years—but I just have this really uneasy feeling that the IMF could be right.