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Major housing correction likely

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The recent decline in Australian house prices could be the start of a major housing correction, a financial economist has said.

"With the stimulus effects fading in 2011, Australian house prices have started to decline," said Dr Jonathon Reeves in today's Australian Financial Review. "It is likely that this is the beginning of a substantial housing correction."

Reeves made the comments in an article which focused on the widely differing forecasts that now existed for the Australian property market. He said the sharp differences in these forecasts were due to the differing data set used by the forecaster.

His view was house prices rose in 2009 and 2010 largely on the back of government stimulus, and that this wouldn't last.

"The magnitude of a fall in Australian house prices will most likely be influenced by overseas events," he said. These factors included the European sovereign debt crisis and its impact on mortgage rates, along with concerns over China's business cycles and the poor performance of the US economy.

He said land shortages were at best short-term influences as "governments have the ability to rezone land for higher density housing."

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