Bank declares there is no real estate bubble in Australia

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Australia Reserve Bank allays fears of real estate bubble

There is no speculative real estate bubble in Australia, according to the country’s Reserve Bank, but it would not be desirable for the current spate of rising property prices to turn into one, officials have said.

Fears of a property bubble emerged after the Australian Bureau of Statistics house price index rose 20% in the year to March, but the RBA does not think it is out of hand.

The bank’s head of financial stability Luci Ellis said that house prices have recovered from their small decline of 2008 to post increases of between about 12 to 15%, depending on the measure.

‘We do not have a credit fuelled speculative boom on our hands. However, it would not be desirable for the current situation to turn into one. It will therefore be important for lenders to remain prudent in their standards,’ she said in a speech.

‘It will be equally important for prospective borrowers to have realistic expectations, and not to rely on a hoped for capital gain in order to service their debts,’ she told a residential property conference.

Ellis said it would be desirable for the supply of new properties to become more flexible than it had been to date because extra people need somewhere to live, and both house prices and rents could rise. The more that housing prices rise, the more some people might feel they must stretch their finances to buy a home, she said.

She said the RBA will continue to carefully watching lending standards in the important first home buyer market segment.

There are signs that some markets are slowing. The latest Residex figures show that in Sydney, where prices rose 17% year on year in April, auction clearance rates dropped by more than 10% to 62.5% following a buoyant start to the real estate year with clearance rates averaging about 80% in the first three months.

Residex managing director John Edwards said interest rates and nervousness about high local prices and the economic crisis in Europe had caused the sharp drop.

Independent auction house Cooley Auctions said clearance rates dropped from 80% to 50% in the first week of May. ‘There are early signs that the heat’s coming out of the market,’ said auctioneer Damien Cooley.

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