RBA warns FHBs to wait for crash

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From the SMH blog:

A senior Reserve Bank official has warned first-home buyers against taking on too much debt in order to buy property, saying the squeeze on this part of the market is probably temporary or ‘‘cyclical.’’

With first home buyers’ share of house sales near record lows, RBA head of financial stability Luci Ellis today acknowledged that many people trying to buy their first property may feel ‘‘squeezed out’’.

However, she cautioned first-home buyers against overstretching themselves in order to compete with investors and other buyers. Not only would this be against first-home buyers’ own interests, it could also increase risk in the financial system, she said.

She also affirmed the RBA’s view that house price growth would not return to the boom-time increases of the 1990s and early 2000s.

Ellis said that in recent years banks had become more cautious in their assessments of how mortgage borrowers would cope with higher interest rates. This approach – one that is backed by the RBA – limits lending to first-home buyers more than others because they tend to have smaller deposits and lack equity in the property market.

I haven’t seen a full transcript of the Q&A but the gist of the reporting seems to be wait for the crash, grasshopper…

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.