How would Australians feel if the house that they bought in 1979 was worth almost 10% less today? It’s fair to say they wouldn’t be too happy. But this is the scenario that homeowners in the United States, who are experiencing the effects of plummeting wealth, are putting up with. From 1991 to 2005, US house prices rose at a rapid rate but, adjusted for inflation, prices are now almost 40% off their peak, or roughly US$100,000. Those who stumped up to buy a house in 1979 are now down about 8.5% - and that’s more than three decades later.
Jeremy Grantham, who is a well respected Investment Analyst from GMO suggests that the Australian property market is well and truly overvalued, when compared with rental income yields, long term historic averages and relative to incomes in Australia.