Reserve Bank governor Glenn Stevens has said housing prices are nothing to be worried about, telling a business lunch yesterday prices in the current residential property market are “not exceptional by global standards”.
But his comments come as new data from the ABS and property research RP-Data have found that home sales dropped by 20% during the calendar 2010 year, and commitments for new homes fell by 9.6% in January.
“I don’t think we have huge rises going on… we have had quite modest growth in house prices for the past year or so,” Stevens said yesterday.
“That would seem to me to be consistent with a household sector that is being more careful and has properly observed what has happened in other parts of the world.”
Stevens said while the house price to income ratio is often quoted as evidence of a housing bubble, he argues the broader measures look at country-wide prices and income, and therefore the ratio is about 4.5 and “has not moved much either way for 10 years”.
“That is higher than it used to be but it is actually not exceptional by global standards,” he said.
Those comments line up the views of some analysts, such as those from ANZ and Rismark, which argue the house price to income ratio is deficient and does not take into account other income sources.
However, his comments come just one day after the Real Estate Industry of Australia released new figures which show housing affordability has become even more difficult, with the average homeowner now requiring 35% of their income to make repayments.
The same survey also revealed the proportion of first home buyers as a total of home owners has now reached its lowest point since 2004.
And RP Data said yesterday the number of sales dropped 20% during 2010. Sales fell by 30% in Darwin, in Brisbane by 29% and in Hobart by 28%.
Housing Industry Association economist Matthew King says while prices have remained stagnant lately, there is still an affordability issue plaguing first home buyers.
“My understanding is the governor referenced the fact there aren’t huge price rises going on at the moment. That is true, we’d certainly agree with that and from the middle of last year we’ve seen prices grow significantly.”
However, King says there is still a serious affordability problem in several property markets, and the HIA takes the view that interest rate movements need to be approached with caution in the next quarter as spending remains so fragile.
“There are obvious issues here, of supply, and other matters. The focus needs to be taken away from the house price side of things to the extent that we need to keep focusing on addressing the supply of new homes.”
“It’s all very well discussing house price movements, but we need to be looking at our ability to supply dwellings at the rate of demand. In recent years, we’ve done a poor job of that.”
Stevens also made comments referencing the mining boom, saying Australians have done a poor job of handling sudden bursts of wealth in the past, and the country needs to improve.
“Having taken on quite a degree of debt over the preceding 15 years or so, households have thought better of taking on too much more,” he said. “They are saving more than at any time for 20 years or more.
“So are households in many other countries, of course, but our good fortune is to be making that adjustment against a backdrop of rising income.