No need to fear house price dive, says Reserve

Simon Hampel · 31st Oct, 2008

No need to fear house price dive, says Reserve - National - smh.com.au

HOUSE prices in Australia are not set for precipitous falls, as in the US, nor are household balance sheets suffering too badly, says the Reserve Bank deputy governor, Ric Battellino.

He said that despite the sharemarket plunge, annual returns on shares had averaged 8 per cent over the past five years and real incomes had risen 30 per cent - the biggest surge in more than 30 years.

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Amid predictions that house prices would fall by 40 per cent as households crumbled under the weight of mortgage debt, Mr Battellino told a bankruptcy conference in Sydney that prices would hold up much better than in the US, where they have fallen about 16 per cent in the past year.

Unlike the US, Australia's housing bubble had already burst, about three years ago, Mr Battellino said. "The Australian housing boom ended because prices rose to levels that severely strained the financial capacity of buyers to pay higher prices, not because too many houses were built, as in the US.

"The overhang of unsold houses in the US has created downward pressure on house prices as builders and developers have been forced to sell." This had not happened in Australia, he said. "Rather, the shortage of housing here means that there are buyers waiting for better circumstances - for example, lower interest rates or rising incomes - to facilitate their entry to the market." This latent demand would support the market."

Moreover, housing debt in Australia was largely in the hands of middle-aged borrowers who could afford it, rather than more marginal borrowers, as in the US, meaning forced sales were less likely.

"In Australia, the lending boom was concentrated on existing home owners who traded up to bigger and better houses, and bought investment properties," he said. "While one could argue that no socially productive purpose was served by this increased lending to middle-aged existing home owners, it did mean that the loans largely went to those who had a strong capacity to service and repay them."

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Chris C · 31st Oct, 2008

I find it had to believe the Australian housing bubble "burst" three years ago. I think he'd be closer to the mark if he said the housing bubble started "deflating" two years ago with slow growth with continued slow growth in the near future.

crc_error · 1st Nov, 2008

yeh I dont see how it burst, prices largely went up in 2006/2007, they only remained flat, or went slightly down in the last 12 months.

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No need to fear house price dive, says Reserve

Simon Hampel Co-founder Staff Member

Chris C Well-Known Member

crc_error The Rule of 72

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No need to fear house price dive, says Reserve

Simon Hampel Co-founder Staff Member

Chris C Well-Known Member

crc_error The Rule of 72

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