RBA Says ‘Rising House Prices Good for Economy’ 2

Thursday, November 20th, 2014
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Property investors are dominating the housing market, but at least rising house prices are encouraging people to spend more money, the Reserve Bank says.

The central bank appears less concerned than it has been in recent months about the growth in dwelling investment, when it flagged regulations to curb investor activity in the housing market.

In the minutes of its November board meeting, released on Tuesday, the RBA said property investment growth remained strong and although house price growth had slowed from last year’s rapid pace, prices were still high in Sydney and Melbourne.

The RBA said rising house prices were adding to household wealth at a time when wages were growing slowly, encouraging people to spend more money.

“Members noted that the strength in the housing market was expected to give some support to household consumption in the near term as rising housing valuations allowed some credit-constrained home owners to bring forward their consumption,” the RBA said.

“The pickup in retail sales in the September quarter and stronger growth in retail sales in those states with more rapid housing price growth was consistent with this view.”

The RBA said growth in mortgages to property investors had continued “at a noticeably faster rate” than credit to owner-occupiers, with no signs that dwelling investment growth would slow in coming quarters.

It said low interest rates and ongoing population growth would continue to support growth in housing activity and the established housing market.

“This was expected to spur activity in other areas of the economy through the usual channels,” the RBA said.

In order to continue stimulating demand, the RBA decided to leave the cash rate at the record low of 2.5 per cent on November 4.

“Members considered that the most prudent course was likely to be a period of stability in interest rates,” the RBA said.


By Belinda Merhab
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  1. Boris Slater

    These guys are absolutely nuts – good for the economy, terrible for young Australians with aspirations of home ownership.

  2. Linda Stephens

    This is beyond a joke – House prices in Australia are easily 15-25% overvalued. The only people that are winning here are the builders, real estate agents and the banks… what about the everyday Aussie that is trying to achieve the "Australian Dream"… Is the "Australian Dream" dead?