RBA restores some sanity to "boom" and "bubble" debate

The Reserve Bank and “exciting” have never been seen in the same sentence. It’s a staid and stodgy institution and listening to a speech by an RBA Governor is a slow form of torture. Who can forget the Bernie Fraser monotone? Current Governor Glenn Stevens is a circus performer by comparison.

But thank god for the RBA for bringing some calmness and sanity to general media hype about housing “booms” and the risk of “bubbles”.

Minutes of the RBA’s March meeting show that housing market conditions “do not pose a near-term risk” and there is “no immediate cause for concern” in terms of debt levels and lending standards.

The RBA board says the situation warrants close observation but “agreed that present conditions in the household sector did not pose a near-term risk to the financial system”.

Various claims about the price of Australian dwellings – that they are unaffordable, the highest in the world and indeed constitute of a bubble bound to burst – run contrary to the available research.

It says something about mass media hysteria about “white hot” markets and bubbles collapsing that the RBA’s voice of reason on these issues is a voice in the wilderness – and that its comments on the household sector should receive such scant media attention.

Compare the coverage of the RBA’s calm and rational analysis with the media stampede towards an American spruiker who claimed our property values would drop 50% - the same claim he has made numerous times in the past (but only when he’s seeking to drum up publicity for a seminar tour or a book launch) and been proven wrong each time (he told us Australian real estate would crash in 2012).

Compare also coverage of the emotive and irresponsible claim by Credit Suisse in a “report” that a whole generation of Australians are being priced out of property by foreign investors and face a lifetime of renting. It’s surprising the lengths apparently credible organisations will go to in their pursuit of publicity.

Various claims about the price of Australian dwellings – that they are unaffordable, the highest in the world and indeed constitute of a bubble bound to burst – run contrary to the available research.

Let’s put the alleged “boom” into perspective, using RP Data figures. Dwelling values have risen about 9% in the past 12 months, as an average across the eight capital cities. Only Sydney has experienced double-digit growth. Five of the eight cities have grown just 3% or less.

If you compare current dwelling value levels with the previous market peak, only Sydney is substantially above it. Five of the eight cities have values that are still below the previous peak.

Looking at it another way, the growth over the past 10 years has been moderate in most cities. Sydney has averaged less than 3% per year in the past decade, despite the recent upturn (2013 was the first major growth year in a decade). It has barely kept pace with inflation and wages growth.

The average for the eight capital cities is about 4% per year over the past decade. That means negligible growth, if any, in real terms.

How can anyone construct a bubble fit to burst out of those numbers?

The media coverage that claims this goes beyond sensationalism. It’s dishonest, unethical and the worst kind of misinformation, which remains the blight of real estate consumers across the nation.