Friday, April 22, 2011
Does the RBA think there is a bubble in the housing market in Australia?
Actually, for the past year or two, house prices haven’t done anything much at all. They’re up in some parts of the country, down in others and, interestingly enough, the two regions where house prices have been weakest are Queensland and WA. Given the nature of the resources boom that’s building up, it’s hard to believe that they’re going to see chronic weakness over a long time. I think the story for recent weakness is probably that they’ve got some indigestion as a result of the previous upswing.But, as we see that unfold, we continue to see arrears rates on mortgages very low by global standards – 50 or 60 basis points. ...So, you know, that’s probably not top of my list of worries. I think there are significant issues to do with housing values, but I think they are as much social, really, as economic, and I won’t go into that today; there’s not time. But I think – the other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the radio it about 4.5 and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see.Quote above is from Governor of the Reserve Bank of Australia, Glenn Stevens, in London in March 2011, when asked if Australian residential housing was a bubble. He should know. Commentary by Chris Joye here.