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Monday, November 08, 2004

Good news from the IMF...or is it?

Watch out for smug Costellos on the loose today after a glowing report from the IMF. Ticks in all the right boxes or so it appears. But the report is a bilateral conclusion, i.e. it is made at the request and with the full consultation of the Australian Government. If you can be bothered to read the executive board report see it here, but perhaps more interesting is the staff report that forms its basis. On the household balance sheet front the staff report says that financial assets are low, with land and dwellings assets high and:
"Since the mid-1990s, household liabilities have also surged with debt for housing accounting for 84 percent of the increase."
Of course the equity looks good because people are borrowing against record property prices. What is the risk of this bricks and mortar wealth being wiped out? Somehow in less than two months the IMF have decided that the Australian housing bubble is no longer unusual or a problem, but the staff report (not the executive summary) does say that:
"However, unlike the past, the current surge is being driven to an important extent by demand for investment housing, which tends to be concentrated in the central business districts of the major cities and may be more at risk of a price correction. Spillover effects to other segments of the housing market from such a correction could significantly weaken household balance sheets."
I.E. You know that money you borrowed to buy a new car or go on holiday because you felt good about the value of your house going up? I'd think about paying it off sharpish if I were you. Oh, you can't pay it off any quicker as you have no disposable income? Oops.

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