To prevent a property bubble, the Reserve Bank of Australia (RBA) will take action once home prices start increasing by 10 to 20 percent per year, said Reserve Bank Governor Glenn Stevens.
He urged Australians to be comfortable with modest price increases, although double-digit growth is both “troubling” and puzzling”.
The central bank is also comfortable with the cash rate falling below three percent, he said, adding that there is no “particularly clear evidence” that RBA’s monetary policy is not working.
“We’ve seen some pick-up in housing prices, as you’d expect with interest rates coming down, but I don’t think we’re seeing at the moment a dangerous leveraging up there by households,” said Stevens.
While he feels that home prices in Australia are high, it is not grossly overpriced compared to other countries. It is “actually a lot harder to make the case that they’re grossly overpriced and due for a crash. After all, we’ve been around this level of house prices/income for 10 years – [it’s] taking a long time to burst if it is a bubble”.
“So I’m not so much concerned about a crash, but as I have said also before, it seems to me we would be flirting with danger were we to see a very big run-up from these present levels.”
The central bank is also comfortable with “gentle reversal” of the 10 or 15 percent decline that has already happened, noted Stevens, adding that there has been “some gain in house prices over the past year”.
Romesh Navaratnarajah, Senior Editor of PropertyGuru, wrote this story. To contact him about this or other stories email romesh@propertyguru.com.sg
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