Australia’s ‘misaligned’ housing market at risk of major crash as rates rise: IMF – Sydney Morning Herald

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Property prices in Australia may be as much as 50 per cent above what an average household can afford as interest rates rise, a global analysis has revealed while warning the market is at risk of a major crash as interest rates are pushed up to bring inflation under control.

In a report on housing stability and affordability, the International Monetary Fund said Australia’s property and rental markets are some of the most “misaligned” in the developed world.

Australia has one of the most “misaligned” housing and rental markets in the developed world, leading to high priced land and houses.Credit:Louie Douvis

The combination of high prices on top of sharp increases in mortgage interest rates mean the average Australian household needs to spend more than 40 per cent of disposable income to afford a median-priced house.

During the pandemic, median house prices soared by more than 30 per cent across the country as prospective homeowners took advantage of record-low interest rates and government handouts to first time buyers.

Prices have fallen in Sydney, Melbourne, Hobart and Canberra, with most analysts expecting prices to edge further down during 2023.

Rents nationally are climbing at their fastest rate in a decade and are expected to accelerate. Australia’s rental vacancy rate set an all-time low of 1 per cent in November.

The IMF examined what it termed the “misalignment” of the property market, comparing the long-term ratio of incomes to house prices and rents.

In Australia’s case, prices on one measure were 30 per cent above their long-term average while rents were more than 40 per cent beyond their long-term norms. This put Australia alongside New Zealand, Canada and Hong Kong as the most misaligned property markets in the world.

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On another measure, which attempts to remove the economy’s impact on

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