Bubble talk still “unrealistic”

Editorial director of Switzer
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On Friday, the head of financial stability at the Reserve Bank of Australia, Luci Ellis, said nothing had changed in the housing market since her boss, assistant governor Malcolm Edey, used the “unrealistic alarmism” phrase a few weeks ago.

According to Ellis, there is no comparison between housing activity now and the last time Australia approached anything near a bubble in 2002/2003.

“That was an era where credit growth was growing quickly, housing prices were growing quickly, rental yields were low and falling, the household savings ratio was negative, there were lots of new products, easing lending standards in the credit markets, investor interest in housing was really, really strong, and the real economy was also kind of experiencing spillovers from all that,” she said in response to a question following her presentation at the The Paul Woolley Centre for the Study of Capital Markets Dysfunctionality conference.

“You compare that to now, well yes housing prices have been growing but they have been falling until recently.

“But the important point here is we are not seeing a credit-fuelled speculative boom.”

On SMSFs

She also reiterated what the bank said last month about SMSFs.

“We explicitly said in the financial stability review that SMSFs are not a near term risk to financial stability,” she said.

“We found that most of the property that is in SMSFs is actually in commercial real estate. There is a number of tax reasons for that. The residential side is growing quickly, but from a very low base.

“It’s an additional source of demand dynamic that were just going to have to keep a good eye on in the future.

The data

The RP Data preliminary auction clearance rate dropped slightly over the weekend to 71.6% from 72.5% the previous week (see graph 1 below). But the number of properties being put up for auction in capital cities is still very high at 2,342, compared to 2,229 the previous week.

Graph 1: Weekly clearance rates, combined capital cities

Auction clearance rates were still strong over the weekend but didn’t quite reach 80% in Sydney, where they were 79.9% on the APM measure. In Melbourne, the APM auction clearance rate was 72.4%. The median price in Sydney for houses is again hovering near the $1 million mark at $990,000 (see table 1 below).

Table 1: This Saturday, 19 October 2013

The revised numbers for the previous week reveal a pull back from Sydney’s initial 85.5% to 81% and Melbourne’s 76.1% to 72.6% (see table 2 below).

Table 2: Saturday, 12 October 2013

And the data for the same week a year ago highlights the relatively short time that the East Coast residential property market has been experiencing strong activity. Rates this time last year in both Sydney and Melbourne were still less than 60% (see table 3 below).

Table 3: Saturday, 20 October 2012

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