Newspaper article The Chronicle (Toowoomba, Australia)

Prices to Stagnate as Debt Binge Ends: Report

Newspaper article The Chronicle (Toowoomba, Australia)

Prices to Stagnate as Debt Binge Ends: Report

Article excerpt

AUSTRALIANS are falling out of love with debt and that means house prices will remain flat this year as potential homebuyers hold off tapping banks for bigger loans to land properties, according to analysis by Deutsche Bank.

The reluctance to take on new debt or stepped-up efforts to pay back existing loans will trim households' debt-to-disposable income ratio, a common gauge of indebtedness, by about 10 percentage points by December 2012, the bank predicts.

Even so, the so-called deleveraging will still leave the ratio at about 165 per cent, from about 175% now, still among the highest levels in the world.

aWith households unlikely to embark on the kind of rapid expansion in household debt relative to income that occurred in the first half of the 2000s, the prospects for rapid house price appreciation look small,a said Deutsche Bank chief economist Adam Boyton in the bank's monthly housing market update.

aWe expect household deleveraging to be the overwhelming influence on house price dynamics over the next few years,a Mr Boyton said.

According to Deutsche Bank, stagnant house prices may last for some time.

aThe historical relationship between debt growth and house prices suggests that the recent weakness in house prices is unlikely to be sustained,a Mr Boyton wrote in the report.

A slower pace of borrowing, evident in weaker housing loan data, points to annual price growth of 2.5% a year, or aroughly unchanged in real termsa. …

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