Despite a lot of talk of an over-inflated property market in Australia, Reserve Bank governor Glenn Stevens has told a business event in London that he is not overly concerned about the state of the nation’s housing sector, given that the ratio between home-buyers’ incomes and house prices is not exceptional.
According to a report on the ABC, Stevens said although “very high ratios of price to income for Australia” are often “over-quoted…if you get the broadest measures – country-wide price and a country-wide measure of income – the ratio is about 4.5, and it hasn’t moved much either way for 10 years.”
“That is higher than it used to be, but it’s actually not exceptional by a global standard, as far as I can see.”
Stevens told his London audience that the commodities boom in Australia is still the topic high on the agenda for the Central Bank and their management of monetary policy, suggesting the Chinese and Indian demand for our natural resources could continue for decades.
He says Australia should learn the lessons from previous surges in commodities.
“Historically, on other occasions where the global economy has conferred on Australia a significant gain in income we have not often managed that very well.”
“So on this occasion we have to do better. We have to take the opportunity to capitalise effectively on these very powerful trends in the world economy to which we are, almost uniquely, favourably exposed.”
He also revealed that the RBA is currently happy with the state of Australia’s economy saying, “Australia’s experiencing, I would say, growth close to trend: an unemployment rate of 5 per cent, and an inflation rate in the twos, which is right where we want it.”
“In comparison with our experience over the preceding three or four decades, in fact, that’s a pretty good combination.”
He says the recent reversion of households to the old ways of saving over spending is helping to ease interest rate pressure and is a wise path to follow at the present time.
“The truth is that you can’t know exactly how this will turn out,” he said.
“The key is going to be, I think, to be prudent, careful, which is why I argue for saving a lot of the additional income for the time being until it gets clearer how permanent it is.”
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