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Australian house prices vulnerable to foreign shocks, as global markets synchronis

Property Markets / Outlook

Australia

Apr 15 2018

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Australian property prices may be vulnerable to unexpected foreign shocks, new research from the International Monetary Fund has warned. 

The study of 40 countries and 44 major cities across various economies, also shows that global housing markets have become synchronised, experiencing a simultaneous upswing since the global financial crisis. 

The findings, published by the Washington-based fund on Tuesday, demonstrate that, increasingly, house prices have become determined at the global level.

The report said Sydney and Melbourne were particularly vulnerable to global forces because of the way Australia is integrated to international capital flows, which have been driven by investors seeking higher yields in a world of near-zero interest rates.

"Heightened synchronicity of house prices can signal a downside tail risk to real economic activity, especially when taking place in a buoyant credit environment," the report said.

It also warned that Australia may be even more vulnerable than some economies because of its reliance on foreign income from exports.

"In this case, a decline in external demand may exacerbate the challenges of stabilising household balance sheets, financial markets, and economic activity.”

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