Reflecting low interest rates, better affordability, strong population growth and increased foreign interest, housing demand and house prices have been on a decent upswing over the past year – particularly in Sydney, Melbourne and Perth.
One of the few bright spots in the economy is the burgeoning strength in the housing market. Reflecting low interest rates, better affordability due to earlier house price weakness, strong population growth and increased foreign interest, housing demand and house prices have been on a decent upswing over the past year – particularly in Sydney, Melbourne and Perth. And while I have long argued that house prices are not (yet) in a bubble – based on historic valuation metrics – one worry has been the growing imbalance between investor and first home buyer demand. In particular, investor demand has been especially strong and is already reaching the heights evident during Australia’s last real speculative property frenzy around a decade ago. Either the market is getting a little unbalanced or important structural changes are taking place.
In October, the share of home lending directed at first home buyers had fallen to 7.1 per cent, broadly equal to the lows of late 2003
In other words, the composition of housing demand is now similar to that when Australia’s last clear case of speculative property excess finally came to an end. That might suggest a rerun of the house bubble a decade ago. But does this mean the housing market is about to implode? No – or at least not for a while yet. For starters, the 2003 bubble was pricked by rising interest rates – an unlikely event any time soon given the sluggishness of the economy. And as noted so far, house prices relative to incomes and interest rates don’t yet appear grossly overvalued, so the Reserve Bank won’t feel the need to bring forward rate rises to prick a bubble that is not yet evident.
INTEREST rates could come down further, with Reserve Bank Governor Glenn Stevens indicating the central bank has an "open mind" about further shifts on monetary policy.
Fronting a parliamentary committee in Canberra this morning Mr Stevens said the economic year had not been as good as the RBA had hoped, but not as bad as it could possibly have been.
He said it was not out of the question that the official cash rate could come down further from the current 2.5 per cent.
"The board has an open mind about whether need to lower interest rates further," Mr Stevens said.
Consumers have enjoyed record low interest rates post the global financial crisis, resulting in more first-time homeowners getting into the market.
However Mr Stevens said that a further lowering of interest rates may not be enough to encourage spending and investment in other areas.
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