The International Monetary Fund (IMF) has warned Australia’s housing market is at risk of a “sizeable price correction” – a major drop in prices which could be comparable to past housing “busts”.
The reason? A “misalignment” between the cost of housing and the cost of borrowing. Australia already has above-average housing costs, and the IMF warns recent interest rate rises mean the average household will have to spend more than 40% of its disposable income to afford mortgage repayments for a typically-priced house.
How could that cause a housing bust? Because when mortgage costs are too high, more people are pushed to sell.
House prices have fallen across Australia in recent months and also an increasing number of houses have sold at a loss, according to property data company CoreLogic.
However, CoreLogic says there are not yet signs that these sales are being driven by “distressed” homeowners who cannot keep up with their payments.