Luci Ellis, Head of Financial Stability Department for the Reserve Bank of Australia today said “Recent data suggest that we do not have a credit-fuelled speculative boom on our hands” after data from the Australian Bureau of Statistics out earlier this month showed house prices surged 20 percent across the nation, and as high as 27.7 percent in Melbourne this year.
In fear of the current situation turning into a bubble, Ms Ellis said “It will therefore be important for lenders to remain prudent in their standards.” She indicated demand side drivers were low interest rates and lower than expected unemployment.
Ms Ellis comments follow that of U.S. Federal Reserve Chairman Ben Bernanke. In October 2005, Bernanke told congress he didn’t believe there was a housing bubble in the U.S. after prices rose almost 25% in two years citing “largely reflect strong economic fundamentals,” such as strong growth in jobs and incomes. Early the next year, house prices took a sharp dive in the U.S.
» No property bubble, RBA says – The Sydney Morning Herald -18th May 2010.
» Bernanke: There’s No Housing Bubble to Go Bust – The Washington Post, 27th October 2005.
The RBA dont have a clue about how they can stop the bubble due to the stupid tax laws in this nation ie (neg gearing) so they are just not going to admit it exists until it go’s ‘POP’ I am totaly amazed at how people like Ms Ellis can get into positions of power like the one she holds without some small hint of brain power? If it costs 6 times the ave income to buy a first home then any person with half a brain should be able to see that the whole thing is headed for a massive crash. At the first big rise in unemployment in Australia the house prices are going to plumit and its only a matter of time!
If there really was no bubble, RBA spokes-people wouldn’t have to bother spending their time trying to reassure everyone about it.
Central banking is like controlling a rocket ship with one lever.
What is happening now is that the lever is 1/2 broken because if they raise rates high enough to correct housing prices (and consumption –> Credit Card Debt) to a reasonable multiplier of disposable income the entire market could implode. If unemployment hits this will happen anyway (like in the US and parts of Europe)
A sure sign of the bubble though is the increase in multiplier ( x disposable income) cost of houses and the fairly flat increase in wages. Historically (prior to the late 90’s) house prices increased at rate in reasonable correlation to wage increases (with a few spikes here and there).
Excellent idea to put Ellis’ and Bernanke’s statements side by side. These folks are bureaucrats whose only job is not to rock the boat. The RBA, which today is denying the existence of a bubble, will be furiously slashing rates by year’s end to avoid the collapse of this non-existent bubble.
A real estate email came through today. Although I have read it somewhere before he was basically saying that getting into a mortgage with friends and family is a great way to get into the market and buy your dream house (thats code for fibro shack in Western Sydney).
Are these people for real. They must really really want to keep this bubble inflated. Sad really.
I hope not too many people are suckered in between now and the crash.
Hmmmm, yes well Ms Ellis then went on to say that the earth is flat and that the moon is made of cheese.