The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Thursday, March 10, 2011

RBA Governor addresses UK questions on Australia's housing market

The Governor of the RBA, Glenn Stevens, told a London audience overnight that he was not worried about Australia's housing market, correctly highlighting that there has been virtually no house price growth in Australia over the last year or so (only +1.2% since January 2010 in the capital cities, which account for 60% of all homes, and -0.3% since January 2010 in the rest of state areas, which account for the remaining 40% of homes). Governor Stevens also (indirectly) references RP Data-Rismark's findings that show that WA and QLD have been the two worst performing states. Finally, he noted that Australia's "country-wide" dwelling price-to-income ratio is only around "4 1/2 times", which is "not exceptional by a global standard." Rismark is the only organisation to publicly produce such a metric, and our September quarter estimate of average national dwelling prices over average incomes was 4.4x, and will be updated for the December quarter National Accounts shortly. See Governor Stevens' quotes below:

"Well, let’s establish a few facts. Actually, for the past year or two, house prices haven’t done anything much at all. They’re up in some parts of the country, down in others and, interestingly enough, the two regions where house prices have been weakest are Queensland and WA [Western Australia]. Given the nature of the resources boom that’s building up, it’s hard to believe that they’re going to see chronic weakness over a long time. I think the story for recent weakness is probably that they’ve got some indigestion as a result of the previous upswing.

But, as we see that unfold, we continue to see arrears rates 5 on mortgages very low by global standards – 50 or 60 basis points.

So I’m not terribly troubled by – I don’t think we have huge rises going on. We don’t have a gearing up going on now. We’ve got quite modest growth in housing credit now for the past year or more. That all seems to me to be 10 consistent with a household sector that’s being more careful. It’s probably observed what’s happened in some other places in the world and thought, “Mm, you know, let’s not have that,” and people are being more careful as a result. And, of course, we do have a surge in income happening.

So, you know, that’s probably not top of my list of worries. I think there are significant issues to do with housing values, but I think they are as much social, really, as economic, and I won’t go into that today; there’s not time. But I think – the other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price 20 and a country-wide measure of income, the radio it about 4 ½ and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see."