Moody’s Investors Service has delivered a warning on Australian property prices, saying they are increasingly likely to “face a correction”.
The ratings agency, in a regular report on the Australian economy that maintained the nation’s triple-A debt rating, said the trend of growing housing wealth could not continue indefinitely.
“[This] trend poses some medium-term risks as Australia's real estate market may be overheating, with both price-to-income and price-to-rent ratios reaching levels well above historical averages,” the report said.
“After considering supply-side constraints, the influx of foreign capital and the fact that monetary policy is set to remain accommodative for the foreseeable future, the housing market appears to be increasingly likely to get caught up in a positive price-feedback loop and eventually could face a correction.”
The warning is Moody’s strongest yet on the Australian housing sector and comes after a strong uplift in capital city prices last year. However, the ratings agency added that any fall in house prices would be contained by a lack of supply.
“In terms of volumes… rising housing prices have not so far resulted in a construction boom: residential construction activity remains largely in line with demand trends,” Moody’s said.
“This, along with still historically low leverage levels, strong mortgage buffers, and well-capitalised banking system, limits the impact of a potential real estate market contraction on the broader economy.”
The wide-ranging report labelled stable local consumer confidence indicators in recent years as “remarkable” given the headwinds for the economy.
Transparent fiscal policy and “very high economic resiliency” meant there was no threat to the country’s debt rating at this stage, with the economy tipped by Moody's to expand by between 2.6 and 3 per cent per annum over the next five years.