imf and reserve bank warn of housing crash

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    IMF warns on soaring house prices

    IMF warns on housing market bubble risk.
    Source: ABC TV

    Australia's housing bubble has drawn a warning from the International Monetary Fund (IMF).

    Australia is among a handful of countries where the IMF believes soaring house prices pose a risk.

    Britain, Ireland, the Netherlands and, to a lesser extent, the United States are the other countries where the IMF notes there has been a sharp rise in house prices in recent years.

    In its latest World Economic Outlook, the IMF says the short-term outlook for Australia is subject to "considerable" risks.

    One of those is a rapid cooling off in the housing market, following the boom of the past three years.

    The warning follows comments from Treasury secretary Ken Henry earlier in the week.

    "We have been surprised by the continuing strength of dwelling investment in particular. We have been a little surprised too I have to say by the continuing growth in real house prices," he said.

    But National Australia Bank chief economist, Alan Oster, says the IMF warning of a bust overstates the risks.

    "Yes, it is a risk. Do we think it's the most likely outcome? No, I don't."

    The IMF says if there was a further significant increase in bond yields, economic recovery could be adversely affected and there would be a greater risk of a "housing bust".


    The Federal Opposition has seized on the IMF report.

    Labor's Mark Latham says the report echoes a number of recent warnings.

    "Unfortunately we've got a government that's very complacent about the housing bubble, we've had warnings now from the Reserve Bank, from the head of Treasury and now the IMF," he said.

    "It just begs the question how long can the Howard Government ignore this very serious issue of economic management, how long can they be complacent about the prospect of housing boom and bust?"

    But Finance Minister Nick Minchin thinks a housing bust is unlikely.

    Instead he is predicting a slow easing in housing prices.

    "Not all bubbles burst, many of them merely deflate, and as many economists will tell you, there's every reason to believe this one will deflate as have other so-called bubbles."

    Source: ABC

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