Australia is facing a "time bomb" housing bubble that will be
set off by rising interest rates, US investment guru, Jeremy
Grantham, warned in a report published on Wednesday.
Grantham, who correctly predicted the financial crisis a year
before it hit, said Australian house prices needed to fall 42 per
cent to reach the long-term trend.
"You cannot possibly miss it," he told The Australian newspaper.
"The price of housing typically trades about 3.5 times of
family income and in a bubble it goes to six or 7.5 times.
Australia is having one now. You are at near 7.5 times family
income...which suggests you are twice the size you should
be."
He said Australian prices, which have been rising for more
than a decade, needed to slide 42 per cent to return to the
long-term trend.
Grantham, co-founder of global investment company GMO
who has made a career out of identifying speculative bubbles,
said British house prices were also over-inflated, The Australian
said.
Australia's central bank has raised interest rates six times
since October ‒ off five-decade lows ‒ to head off inflation,
increasing pressure on home-owners.
Grantham said that if Australian housing did not return to the
normal multiple of family income, "it will be the first time in
history".
"Sooner or later, the rates will go up and the game is over," he
warned.
(Source: AFP)
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