Joye: Phil Lowe has no idea about house prices

From our Chris today:

When the RBA slashed its cash rate from 4.75 per cent to 1.5 per cent between 2011 and 2016, it repeatedly argued that this would not trigger a re-leveraging of household balance-sheets and/or a new double-digit house price boom, which is exactly what happened.

…Most embarrassingly for the RBA, two of its top researchers, Trent Saunders and Peter Tulip, published a detailed academic paper shortly thereafter proving that almost all of the stunning increase in house prices between 2013 and 2017 was indeed attributable to the reduction in mortgage rates.

…So forgive me if when Lowe says the recent RBA rate cuts will not reignite the housing bubble, my mental reflex is to dismiss this rhetoric as non-credible.

[The] recovery will accelerate as cheaper mortgage rates grip and the banking regulator’s easier interest rate serviceability tests expand purchasing power further. (It is a source of endless amusement that perma-housing-bears like Steve Keen and John Adams consistently get the housing cycle totally wrong, as highlighted in my recent debate with the latter.)

I would not be surprised if the housing market starts to boom again and the capital gains over the next 12 months are closer to the upper-end of our proposed range.

I don’t expect it to get away but there is no doubt at all that the risk is material, especially as the apartment quality control crisis deepens, limiting stock.

If the RBA and APRA are not warming up another round of macroprudential tools, just in case, then they are negligent.

Houses and Holes

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 fouding 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.

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