Why the RBA is happy with rising house prices

Via the AFR:

So should Reserve Bank boss Philip Lowe be getting ready to stage an intervention to thwart an imminent surge in house prices.

…Dr Lowe will have had a close look at the Reserve Bank’s own confidential research that argues that house values could jump 30 per cent over three years if near-zero interest rates persist.

Appearing before a federal parliamentary committee in Canberra last December, he noted there had been divergent trends in the housing market over the past nine months, with many regional markets doing better than capital city markets, and a divergence between house prices and apartment prices.

But, he noted, “it does appear that the trend is towards house prices at the moment and that shouldn’t surprise us; lower interest rates do mean higher prices…That’s part of the transmission mechanism.”

…”given the cautiousness of the banks and the change in peoples’ attitudes to debt, we’re not going to see people rushing to the banks to try to borrow 90 to 95 per cent of their loan”.

But, he added, “if they do, then we’ll have to have a discussion with the Australian Prudential Regulation Authority, the bank regulator, about whether there should be some control there”.

In short, the cash rate is dead as a tightening instrument. Especially so given the commodities and AUD takeoff, just as we enter the great Chinese decoupling.

The main reason that the RBA has zero incentive to act now, nor at all this year, nor probably next, nor the year after for that matter, is this:

As households furiously pay down debt, from the RBA’s perspective the only risk to financial stability and the economy is from too little debt not too much.

David Llewellyn-Smith
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Comments

      • happy valleyMEMBER

        Too late for this year. I suspect it will be a ScoMo captain’s pick – Prof Brendan Murphy (ACT Strayan of the Year), the former CMO and now Health Dept Secretary?

        But Analyza That should get their nomination in early for 2022 but their “field of excellence” will have many, many contenders next year once Josh Rainbowberg’s irresponsible lending regime takes off. Analyza That my have to take on $100m more debt to have a go to get a go to even be a look in.

  1. Geez Lowe is a goose. “given the cautiousness of the banks and the change in peoples’ attitudes to debt, we’re not going to see people rushing to the banks to try to borrow 90 to 95 per cent of their loan”
    So where does he think FHBs are going to get the 100K minimum for a deposit unless they borrow to the eyeballs? He hadn’t noticed the government is running a scheme for them to borrow with 5% down? What a clown!

    • happy valleyMEMBER

      Nah – he is an all care, no responsibility man when it comes to housing prices going to the moon, plus he wants his Sydney mansion to be worth a poultice more. The only thing the RBA happy clappies care about is screwing savers and retail depositors and have succeeded totally in destroying their lives.

    • $20k early super withdrawal x 2 = $40k
      $30k each for jobkeeper x 2 = $60k
      There is a cool $100k there without lifting a finger.

      • Jumping jack flash

        Interesting. I hadn’t considered JK, but, that’s even better.

        At the very least, $40K of super dials up to quite a lump of debt at 95% LVR.
        One needs to wait the obligatory 6-month period for the banks not to care where the money came from, but after that, good as gold!

    • Jonathan Rubenstein

      nah – house prices are not included in the CPI.

      Asset price inflation is not inflation. Why? Cos the RBA says so!

      • Jumping jack flash

        No no no.. it is growth. Not inflation.
        Two completely different things. Inflation bad. Growth good.

  2. Jumping jack flash

    Well that’s just pathetic. We need to do a lot better to enter a new golden age of debt. Come on people! Grab that debt!

    Once we get the debt growth to the correct rate we get instant riches for all with no effort. Who doesn’t want to be instantly rich without lifting a finger? All you do is grab a truly enormous, economy-busting pile of debt and throw it up the pyramid. Then you sit back and relax and wait for the even larger pile of debt to be handed over from someone else, just like magic.

    Then do whatever you like with it, basking in the glory of being a winner in the New Economy.

    Can’t be easier. And completely environmentally safe.