IMF says Australian house prices could be overvalued by up to 15%, leaving highly indebted households vulnerable in the event of a property slump.
The mission chief for Australia, Ray Brooks, today said the Fund would soon publish a report on the rise in Australian house prices over the last twenty years.
After looking at the long-term drivers of house prices, including population and income growth, he said the report would show "moderate" overvaluation of 5 per cent to 15 per cent.
Speaking from Washington, Mr Brooks said that if this overvaluation led to a slump in prices, households with high debt levels would be hardest hit.
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"There is a risk that a decline in house prices, if it were particularly sharp, could have some impact on household spending and could lead to some households reducing their high levels of debt," he said.
On the other hand, further growth in income and population could keep prices near their current levels that the Fund sees as excessive.
"You've got continuing strong population growth in Australia and continuing income growth, so that's a possibility."
The unreleased report is based on data from the past two decades until earlier this year.
In recent quarters house prices have softened slightly, after last year growing by more than 10 per cent in many capital cities
Mr Brooks played down the impact of a correction in prices on Australia's banks, because of their record track record of more prudent lending than banks in the Unites States.
A separate report by Australian Property Monitors this week said house price growth was virtually flat at 0.1 per cent in the latest September quarter.
Mr Brooks made the comments after the Fund released a report saying the Australian economy would grow at 3 to 3.5 per cent in 2010 and 2011, above the 3 per cent predicted by the Treasury in its pre-election forecasts just three months ago.
This report also said Australia's dollar was overvalued and the proposed mining tax should be broadened to other minerals besides coal and iron ore.