Bubble not boom expected for property prices

The Reserve Bank of Australia risks creating a mini housing bubble if it keeps interest rates low enough for long enough says Economic commentator, David Bassenese in the Australian Financial Review.

"With mining investment turning down and prospects for non-mining business investment - such as office construction - still quite subdued, the RBA is counting on  a decent upturn in the housing sector to keep the economy afloat over the next year of so."

“Although the RBA naturally does not want to see a speculative bubble develop, it probably concedes that further nearer-term house price gains will help the economy’s transition."

While property clearance rates in Sydney and Melbourne are up, as is investor lending, Bassenese says if house prices do rise it's more of a cyclical trend rather than any sort of boom. 

“Doomsayers will warn of a property bust as and when prices edge lower, and spruikers will talk of a new boom whenever prices rise. But the reality is that house prices are likely to continue to move broadly in line with household income (that is, 3 to 4 per cent a year), albeit with modest cycles around this trend in line with cyclical shifts in interest rates and unemployment," he said,

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