Ever been to Sydney, Australia? It’s beautiful on-the-bay living in a geographically constrained, internationally desirable, and damn expensive city. Sound familiar?
So when JPMorgan goes on record stating that house prices in Sydney are overvalued by 37%, and due for a correction, we sit up and take notice. For despite the fact that their surf is a hell of a lot warmer (and bigger), Sydney really reminds us of San Francisco.
From the Australian Financial Review:

Australian house prices remain 22 per cent overvalued despite the recent property downturn and Sydney is still the most inflated market, according to leading investment bank JPMorgan.
The study, which employs a discounted cashflow model to assess property as an investment, is not good news for anyone, particularly those in Sydney and Melbourne, hoping that the market will stabilise.
“The significant overvaluation in national house prices relative to earlier cycles suggests the downside for house prices should be harder and more prolonged than the modest declines seen in earlier corrections,” JPMorgan economists Jarrod Kerr and Stephen Walters said in the study.
Investors ignored poor fundamentals, blinded by expectations of substantial capital gains, and piled into the market despite rising vacancy rates, record low rental yields, and new supply flooding key parts of the market.”

· Houses still 22 pct overvalued – new study [AUS Financial Review]