Curb your exuberance in property – RBA says


The RBA’s Michele Bullock spoke on financial stability and housing today, with a rising clamour to stop expensive housing markets (mainly in Sydney).

It’s worth noting that even Sydney doesn’t make the top 200 most expensive housing markets in the world from a property price to income perspective.

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There weren’t too many surprises in the speech

As noted here previously investor and interest-only lending aren’t likely to get much looked at because Interest Only loans are essentially a non-issue these days, and with rental vacancies are near record lows the market needs property investors.

So that leaves higher debt-to-income lending (6x), which may be clamped down upon next year if the market is still rising then.

This would likely impact new housing estates and the first homebuyer segments of the market, but experiences overseas have suggested mixed results, including a corresponding increase in joint income borrowers, and more lending at exactly the DTI cap or just below.

In the U.K. we saw a sharp drop in first homebuyer activity as a result of debt to income caps, for example, but there was an increase in joint income applicants and higher-earning upgraders.

Household debt is generally higher in Australia than in many countries, partly because households (rather than the government or corporations) own most of the rental stock.

Even so, credit to income ratios has barely changed since 2006-7, when mortgage rates were way higher than they are today…almost on a different planet.

Household balance sheets have been bolstered by the stimulus too, with households sitting on about $1½ trillion of cash and deposits.

If anything, financial stability risks from household debt have decreased sharply over the past 15 years.

Mortgage repayments are pretty comfortable overall at the moment, with mortgage rates having fallen by more than 100 basis points over the past couple of years.

In summary:

Watch this space.

No cooling measures are likely any time soon, but they could come into play next year if property price growth accelerates.


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Pete is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog

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