OECD warns of further Australian house price corrections but expects strong overall growth

Australia’s economy is forecast to grow by 3% over the next two years on the back of the mining boom but house prices could fall further, according to the latest economic outlook from the OECD.

In comparison, the US economy will grow by just 2.4% and Britain 0.5%, with Italy and Greece sliding further into recession.

The report notes that Australia is one of a number of countries including Canada, Belgium and France where house prices are now “very high” relative to rents and incomes “pointing to possible price corrections at some point or further price corrections in those countries where house prices are already declining".

Australian households remain heavily geared with a high ratio of household debt to disposable income of 183.7%, but this has declined from the pre-GFC level of 186.4%.

In 2000 the ratio was 124%.

The Netherlands has the highest household debt to income ratio of the OECD countries of 290% with the OECD average being 98%.

The report highlights that Australia will continue to reap the benefits of the mining boom, but notes “sharp sectoral disparities”.

It says the high exchange rate, the cautious consumer consumption and investment behaviour of households since the GFC and continued fiscal consolidation are weighing down on many sectors of the economy.

It also notes the recent May 1 rate cut by the RBA of 0.5 percentage points, which although not being passed on fully by the banks due to funding costs, has been an “accommodative stance”

The OECD says that prices of financial assets and property have levelled off since the start of 2012.