Over at my alma mater, Business Spectator, Westpac's warhorse, Bill Evans, echoes remarks made here about the RBA's views of Australia's housing market. Folks like Adrian Rollins, Geoff Winestock, Alan Mitchell, and Michael Stuchbury would be well advised to take heed of Bill's analysis, and pour a little cold water over some of their more hysterical claims about the RBA's approach to housing:
"Current policy is not aimed at any concerns for housing bubbles. Instead, the current objective of rate hikes is to restore rates to normal levels at a time of limited excess capacity just when the economy is entering an upswing. Moreover, the fall in finance approvals...is largely explained by the phasing out of the Government's additional First Home Owners Grant with demand from those borrowers now returning to more normal levels. Around 80 per cent of the fall in new lending can be explained by the fall in the new loans to first home buyers.
While the fall in the number of new finance approvals is comparable with the 2003-04 period, the dynamics are entirely different, with the current episode representing the fade out of a temporary Government stimulus plan and the former representing a successful policy initiative to head off a potential property bubble.
The Reserve Bank Governor has commented several times now that he did not see current developments in the residential property market has bearing the hallmarks of a bubble. We concur. House prices have increased mainly due to housing shortages, the accumulated result of years of under-building and a doubling in the pace of population growth (from 1.2 per cent a year mid-decade to 2.1 per cent a year currently). At the margin, the additional First Home Owners grant may also have stoked prices but this is now being withdrawn and we are already seeing prices soften in the lower end of the market."
