Lower rates to stoke housing rebound: RBA

I don't know about a rebound similar to the 02-04 period as times are different this time around (no global crisis back then) but instead slow steady growth over a period of years. As for how much and how long that's anyone's guess at this point in time. I would anticipate the most growth occuring in the lower end and median end of suburbs.

 

I think the next big leg up for housing will come via the quite extreme inflation that is likely to result at the end of this global recession.

I'm basing this prediction on the FED actions last week where they decided to monetise some of the US debt. Given the "coordinated efforts" of the governments and central banks of the world thus far, I'm assuming the rest of the central banks around the world will opt for the same policy when the time calls for it, and I think most have made it clear they are opting to inflate our way out of this crisis rather than risk deflation ...

It's just a matter of whether the inflationary forces will be enough to stimulate price growth or will they only be enough to offset the deflationary pressures on asset prices as credit contracts.

 

The RBA article on Dr Richards's speech has some very interesting charts

RBA: Speech-Conditions and Prospects in the Housing Sector

 

Not a bad speech, though as is stated at the outset, he didn't touch on nor did he want to comment on monetary policy and the major role it will have in the coming months and years on asset prices.

There is far too many assessment of future housing prices that firstly only take into account housing market fundamentals and falsely assume that this is what primarily drives housing price growth, secondly only frame housing and its trends in the last decade or so, and thirdly, and probably most importantly, the assessments are made without consideration of far more vital influence like monetary policy, with particular reference to credit levels within an economy.

Unfortunately this speech wasn't much different, though it was still a reasonable assessment that had some good information, even if it was obviously biased towards the RBA trying to "convince" people that a housing crash won't happen here, and like most things in life, the more someone tries to convince you that it can't or won't happen the more likely it is that they are covering something up.

Anyway, I think that despite not commenting on monetary policy and credit levels within the economy, the speech also avoided the topic of rising unemployment and the coming recession. I mean I don't think I need to convince people here that rising unemployment is a very negative influence on housing prices...

I thought the other piece of data that was VERY biased, was the international bank's ability to pass on rate cut comparisons. Australian banks have been able to pass on interest rate cuts because our rates were so much higher to start with in comparison to international funding costs (don't get me wrong, I know this is a feather in the Australian hat). My grievance more centers around the fact that to a degree they were comparing apples with oranges when they made the comparison, and I felt they were implying that it's a trend that Australian banks will be able to continue, which I think is just plain manipulation of statistics to support an argument.

I think a fairer test of the Australia financial system will start now, given that an Australian recession will be confirmed soon, and seeing what percentage of the rate cuts are passed on as the RBA goes from 3% down to 0%-1% will be a lot more interesting.

I'm not saying Australia banks are in a terrible position right now, but I do resent the media, government and the RBA implying that they are some how immune to problems that international banks have faced, or that Australia banks haven't been involved in excessive lending, which is just an out and out lie. Their viability to date isn't a reflection of their ability to cope because Australia is only just starting to enter into its recessionary phase, I will be making m assessment of their viability in 12 months time when they are feeling the heat a little more.