ABS data released today show house prices in Australia has fully recovered, surpassing record highs last achieved in June 2010. The weighted average of the eight capital cites recorded a 2.4 per cent increase to the June 2013 quarter and a healthy 5.1 per cent change for the year to June 2013.
For the quarter, all eight capital cites recorded growth in house prices except Hobart – falling 1 per cent.
Perth lead the gains, recording a 3.4 per cent increase in the quarter, followed by Darwin (2.9 per cent), Sydney (2.7 per cent), Melbourne (2.4 per cent), Brisbane (1.9 per cent), Canberra (1.0 per cent) and Adelaide (0.3 per cent).
Despite a healthy housing market, the Reserve Bank of Australia today dropped interest rates to 2.5 per cent, a record low in Australia. Interest rates might be at record lows, but households and business Australia wide is struggling to make ends meet under crippling high household debt levels and falling consumption, further exposed in recent times by a cooling China and resource sector.
But record low interest rates could now be creating an even bigger housing bubble ultimately leading to severe financial instability when the bubble finally deflates, potentially triggered by rising unemployment or a crisis in China. Yesterday, Roy Morgan Research reported on its latest unemployment survey showing the unemployment rate in Australia is now 10.1 per cent up 0.4 per cent. Another 9% of the workforce is considered underemployed.
The problem of low interest rates fuelling bigger property bubbles is something the Reserve Bank of New Zealand is also struggling with. It needs to drop interest rates to support a cooling economy, but the single interest rate lever leaves the out of control gung ho housing sector leveraging up into even more debt, creating even larger issues long term.
It is expected the RBNZ is about to embark on macroprudential controls including capping the number of high risk low loan-to-value ratio loans as it fears rising property values will create financial instability. Time will tell if Australia is forced to consider similar measures.
» 6416.0 – House Price Indexes: Eight Capital Cities, Jun 2013 – The Australian Bureau of Statistics.
» 48,000 jobs created in July, but unemployment up to 10.1% and under-employment virtually unchanged at 9.0% – Roy Morgan Research, 5th August 2013.
» Analysts fear RBA’s rate cuts could fuel property price bubble – 6th August 2013.