Despite rising prices, Australia’s property market should not be a cause for worry, says the RBA. However, not everybody is convinced.
Australian homes are amongst the most expensive in the world, with house prices rising about 11% last year – fuelling concerns that the property market might overheat.
But RBA board member, John Edwards has told News Corp that there is nothing to worry about, saying “it is not anything approaching a crisis”,
According to Edwards, housing credit growth, high amounts of household debt and weak income growth would cool prices.
Data released last week revealed that the value of investor loans surged 6.8% from June, lifting the yearly increase in housing credit to investors to 30%.
Despite more official figures released last week showing the number of jobs increased by 121,000 in August, Edwards maintains that job creation in Australia is relatively weak overall, which will also drive down property prices.
“The number on job creation, you wouldn’t expect that to be sustained. It is extraordinarily high,” he told News Corp.
His comments come after Reserve Bank governor, Glenn Stevens expressed concern over the low-interest environment having the potential to create a housing bubble.
“In our efforts to stimulate growth in the real economy, we don't want to foster too much build-up of risk in the financial sector, such that people are over-extended. That could leave the economy exposed to nasty shocks in the future,” he said.
Meanwhile, a new report has claimed Australia’s housing is some of the most overvalued in the world.
The Australian property market has often been painted as overvalued by overseas observers, and the Swiss-based Bank for International Settlements (BIS) has continued the trend, the ABC has reported. The BIS has claimed Australia’s housing market is second worldwide in price-to-income ratios and equal fourth in price-to-rent ratios.
Australian house prices were 50% higher than usual compared to rents, and 40% higher compared to incomes. The reports authors claimed a price correction could be seen in the future. This could particularly be the case in markets such as Australia’s where wage growth has not kept pace with inflation, the report claimed.
"This might lead to a reversal or moderation of recent growth or a further sliding of prices," the report said.
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