Australia warned of housing bubble

The International Monetary Fund cautioned that housing in Australia may be overvalued and a reversal in prices could hurt consumers in one of the few advanced economies to skirt last year's global recession.

"Given assessed mild overvaluation, a potential correction in house" prices "could hit household wealth and consumer confidence", the IMF said yesterday in its World Economic Outlook.

Housing in many other parts of the world remained a "drag on growth" and a risk to lenders, the fund said.

The IMF's assessment came after Fitch Ratings said last week it would stress-test Australia's mortgage market.

House prices in eight major cities rose by 18.4 per cent in the year to June, prompting some analysts to warn of a bubble.

The Reserve Bank of Australia said last week that the local property market showed "welcome signs" of cooling.

The central bank's six quarter-percentage-point interest rate increases in the past year added about A$3600 ($4700) a year to repayments on an average A$300,000 mortgage.

The RBA kept borrowing costs unchanged this week.

The IMF, in yesterday's report, predicted the Australian economy would expand 3.5 per cent next year after 3 per cent growth this year.

The country's unemployment rate next year would likely average 5.1 per cent, almost half of the euro-area level which is forecast to be 10 per cent.

- BLOOMBERG