So is it a bubble or not?
Low interest rates and signs banks are lowering lending standards have put authorities on housing bubble alert, says Clancy Yeates.PT1M11S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2udut 620 349 September 25, 2013
The Reserve Bank has pleaded with home buyers to be ''realistic'' and told banks to maintain standards amid signs of a takeoff in Sydney and Melbourne real estate prices.
RP Data says Sydney prices have surged 8.6 per cent so far this year and Melbourne prices 5.3 per cent. In just the past three months Sydney prices have climbed 5.4 per cent and Melbourne prices 4.8 per cent. If continued, the pace would ensure double digit price rises in the year ahead.
Sydney clearance auction houses are reporting clearance rates approaching 90 per cent; Melbourne auction houses, 80 per cent.
The RBA's ''Financial Stability Report'', released on Wednesday, draws attention to reports of Sydney sale prices ''exceeding price guidance and valuations by wide margins''. ''An increase in housing market activity more generally is not surprising given reductions in interest rates,'' the central bank says.
''However, it is important that those purchasing property maintain realistic expectations of future dwelling price growth.''
Adding to the Reserve Bank's concern is an explosion in property investment by self-managed superannuation funds, which now account for one-third of all super funds, up from 9 per cent two decades ago. Since 2007 self-managed funds have been able to borrow to invest in property.
The RBA says self-managed funds are a ''new source of demand that could potentially exacerbate property price cycles''. It is also concerned the owners of the funds may be ''exposed to greater financial risks than they envisage''.
The boom in property investment appears to be ''particularly sharp'' in NSW, the report says. ''Investor housing loan approvals now account for around 40 per cent of the value of loan approvals in the state, a share last recorded in 2004,'' the RBA says.
The interest-only share of home loan approvals ''appears high'' at about 40 per cent.
The Reserve Bank is concerned investors have drawn the wrong lessons from the previous ramp-up in prices before the global financial crisis. At those times ''prices grew rapidly in response to disinflation and financial deregulation''.
The RBA says neither of those conditions are present at the moment. ''Long-run future growth in dwelling prices might be expected to be more in line with income growth,'' it says, warning that prices might not climb as high as the new investors believe.
Figures released separately by the mortgage monitoring firm RateCity on Wednesday show that an extraordinary three-quarters of all loans now require only paper-thin deposits of 5 per cent, up from one half three years ago.
RateCity chief executive Alex Parsons said some of the loans on offer now require no deposit. ''Lenders are loosening the belt on home loan criteria, meaning many more potential borrowers are eligible for loans that may not have been approved in the past,'' he said.
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