Bet your house on it, or trek to top of a mountain

Wed Apr 14, 2010 11:05pm EDT
 
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By Anirban Nag

SYDNEY (Reuters) - Predicting future house prices is always a gamble, but for a bearish Australian academic who lost a bet that prices would crash, it also involves a trek to the country's highest mountain peak.

University of Western Sydney Associate Professor Steve Keen began a 225 kilometer, (140 mile) nine-day trek on Thursday from Canberra to the top of 2,228 meter high Mount Kosciuszko after wrongly predicting a housing market crash.

At the height of the global financial crisis in late 2008, Keen predicted house prices in Australia would fall as much as 40 percent, mirroring crashes in the United States and Britain.

But Keen's prediction was questioned by Macquarie Group's top interest rate strategist Rory Robertson, who said the collapse would never happen and challenged the loser to trek to the top of Mount Kosciuszko.

Since then, house prices have rebounded and were more than 13 percent higher in December 2009 than a year earlier. They were also 14.5 percent higher than their low in March 2009.

"My call was always over the longer-term when house prices fall, they fall a lot slower than share prices," said an unrepentant Keen. "The government has simply delayed the inevitable by engineering this latest bubble."

The government doubled a generous grant to first-home buyers in response to the global financial crisis, while decade low mortgage rates saw buyers flock to the housing sector in 2009.

Australia's central bank is concerned about a housing market bubble and rising inflation and has raised rates 125 basis points since October last year, with more expected to come.   Continued...