RBA Governor Reaffirms Australian Property Prices

The Australian property market is one of the most talked about topics. Reports of the yearly, monthly, and even weekly, happenings are closely watched. Without reading the latest news on it, I’m sure you could guess the overall view of the market — it’s overheated.

There are plenty of journalists and commentators predicting an incoming property crash. They cite high clearance rates — dwellings sold at auction — as one reason, trying to imply property prices are at their peak.

Weekly clearance rate

Source: CoreLogic

One of their favourite stats to bring up is the median housing price-to-income ratio. According to the ABC, Australia’s price-to-income ratio is only second to Hong Kong.

Middle income housing affordability

Source: abc.com.au

But will views change? On Tuesday, Glenn Stevens, the former governor of the RBA, left rates on hold. This could imply that Stevens gives no thought to an overheated property market.

Yet I doubt this will change the minds of the pessimists.

By keeping rates on hold, it could encourage more buyers to jump into the property market. Bond yields are low, savings accounts aren’t attractive, and equities are volatile, leaving property looking increasingly attractive to investors.

It engenders the undying belief that prices are always going up. This, of course, isn’t true. However, it’s a likely contributing factor to Australia’s tremendous property price growth.

So has Stevens doomed us all?

Around 70% of Australians own property. If a crash were to happen, the net value of everyday Australians’ property assets might fall more than you think.

Stevens sees a stable housing market

In his last act as governor, Stevens left interest rates on hold at 1.50%. But before he could call it a day, he was forced to share his thoughts on the housing market.

He noted that overall economic growth was continuing. While there has been a ‘large decline in business investment,’ exports and household growth have picked up the slack. In relation to property, Stevens pointed out that overall growth has ‘risen moderately over the past year and growth in lending for housing purposes has slowed.

In 2016, Australian housing prices have barely experienced growth similar to that of last year. The graph below shows the recent price growth decline.

Residential property prices

Source: ABS

In August, housing prices did lift. Overall growth was boosted by the rise in Sydney and Melbourne property values, according to CoreLogic. Yet considerable supply, in the form of apartments, is expected to subdue overall growth.

Apartment buildings all over Australia’s capital cities are piling up. The graph below demonstrates this statement perfectly.

Multi storey apartments boom

Source: ABS, UBS

The RBA is not worried by property price growth because of the graph above. With a supply glut in apartments, it could cause a price correction. I do agree with this assumption. However, I believe the correction will only affect apartments.

So if you were worrying about your housing dropping 40% or more, rest at ease. If a minor correction does strike the Aussie property market, it will likely only affect city-based apartments.

Härje Ronngard,

Junior Analyst, Money Morning 

PS: Most people think great deals in Aussie property are already all gone. This is the worst attitude to have. Why would you take financial advice from some self-proclaimed guru? Instead, why not do your own research and take control of your financial future.

But where do you start?

If you’re interested in investing in property, check out Money Morning’s property expert Callum Newman’s report ‘Australian Real Estate Game Plan’. In the report, Callum reveals the eight letter word that really drives property values. It’s the ultimate guide to help you start your future property plan, and it’s free!

To get your copy of Callum’s report, click here.

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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