Fewer ingredients now for mooted Australian house bubble pop than five years ago: RBA's Glenn Stevens

The prospect of the mooted Australian housing bubble bursting is less likely than what it was five years ago, according to Glenn Stevens, governor of the Reserve Bank.

Speaking at a Sydney luncheon today, Stevens said that the housing market bubble, “if that's what it is, seems to be taking quite a long time to pop – if that's what it is going to do”.

“The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago.”

“Even if the pessimists turn out to be right on one or more counts," Stevens said, “it doesn't follow that we would be unable to cope”.

“Acting sensibly, with a long-term focus, has as good a chance as ever of seeing us through whatever comes our way.

“Most Australians I encounter who return from overseas remark how good it is to be living and working here. We are indeed ‘lucky’ in so many ways, relative economic stability being only one of them,” he said in as part of an address entitled “The Lucky Country” to The Anika Foundation Luncheon in Sydney today, supported by Australian Business Economists and Macquarie Bank.

"We should never say a crash couldn't happen here, and the Reserve Bank continues to monitor property markets and the performance of mortgages quite closely, as we have for many years.

"But it has to be said that the housing market bubble, if that's what it is, seems to be taking quite a long time to pop – if that's what it is going to do.

"The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago."

He envisaged that if dwelling prices in Australia did slump, then there would be obvious questions about how that dynamic could play out.

“In such circumstances people typically worry about two consequences. The first is a long period of very weak construction activity, usually because an excess of stock resulting from previous over-construction needs to be worked off.

“But we have already had a fairly protracted period of weak residential construction; it's hard to believe it will get much weaker, actually, at a national level. The second potential concern is the balance sheets of lenders.

“This scenario is among those routinely envisaged by APRA's stress tests over recent years. The results of such exercises always show that even with substantial falls in dwelling prices, much higher unemployment and associated higher levels of defaults, key financial institutions remain well and truly solvent

“Of course, it can be argued that the full extent of real-life stresses cannot be anticipated in such exercises. That's a reasonable point. But we actually had a real life stress event in 2008 and 2009. The financial system shows a few bruises from that period, but its fundamental stability was maintained."