We have all heard the incessant talk of affordability issues and a growing housing bubble here in Australia, with a lot of the noise being generated by overseas commentators who know very little about the ways of our property markets.
Recently, managing director of research group Rismark International Christopher Joye, asked one such naysayer to put his money where his mouth is, offering GMO Capital founder and investment strategist Jeremy Grantham a $100 million bet on Australian house prices.In an article published in The Australian, Mr Joye said the US property guru’s comments on Australia’s home prices were, “sensationalist and spurious,” and suggested the $100 million wager that would extend over three years should be based on movements in the RP Data-Rismark Australian Capital Cities Dwelling Price Index.
Essentially, Mr Joye’s intention is to force Grantham to either “put up or shut up.”
“We would ask Mr Grantham to cease and desist from his hyperbolic jawboning,” Mr Joye told Dow Jones Newswires yesterday.
“If you actually have any conviction regarding your predictions about the ‘time-bomb’ that is Australia’s $3.5 trillion housing market, we would ask that you put your money where your mouth is.”
This challenge comes off the back of Grantham’s insistence that Australians are spending too much on housing, with property prices overvalued by 42% in his estimate. He says that in our major capital cities, such as Melbourne and Sydney, house prices have doubled in eight years and quadrupled in 21 years. According to Grantham, this type of rapid rise in values is creating a price bubble that’s set to deflate significantly in the near future.
However, the Reserve Bank of Australia argues that the bulk of mortgage-related debt is held by those who can most afford to service it and that the ratio of house prices to income, “is not that different from most other countries.”
Additionally, expert analysts from major banks say our critical housing undersupply and strong population growth will continue to underpin Australian house prices into the future.
Mr Joye said he would pay $1 million to Grantham for every 1% decline in the home price index, but for ever 1 per cent rise, Mr Grantham had to hand over $1 million, with the trade settled at the end of three years.
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