Monday, May 3, 2010

Australia the Next Housing Bubble?

Australia has been sitting down under on its own seemingly basking in it financial glory, as commodities drove the nation to solid performance while most other countries struggled.

That could soon end as housing prices in Australia grew to their highest levels in at least 7 years for the first three months of the year.

Ben Jarman, an economist at JPMorgan Chase (NYSE:JPM) in Sydney said this, “Today’s result will unnerve Reserve Bank officials, and if nothing else, add to the media fervor suggesting that a bubble is building in the housing market."

Thoughts are that will almost guarantee the central bank will increase interest rates at its meeting tomorrow.

Adding the 4.8 percent increase in house prices in the first quarter to the 5.2 percent increase in the prior quarter point to a very real threat, and now one solely fanned by the media. That gain equals about 20 percent on an annual basis, a cause for genuine concern.

Australia has attempted to successfully slow down the rise in housing prices by increasing interest rates at a steady pace, but that hasn't done the trick, although they hope that will change in the months ahead.

Add to this the increasing mood from China that they may be doing the same thing for the same reasons, which will result in lowering demand for some domestic goods and raw materials, and Australia could quickly go from a strong financial position to a very shaky one quickly.

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