The RBA on housing affordability

Make no mistake, the Reserve Bank takes a great deal of time preparing financial information which it intends to deliver a specific message.

Just as when the RBA went to painstaking lengths to prepare a chart a few years hence showing that Australian housing was ‘in the pack’ in terms of how expensive it is in global terms, so it is today.
Last month, the Central Bank showed the below chart at a speech in Sydney by Assistant Governor Christoper Kent, which shows that the correction through 2011 and the first half of 2012, when combined with interest rate cuts from 4.75% to 3.00%, payments on new housing loans represent less than a quarter of disposable income.

Graph 1: Payments on New Housing Loans
Similarly, the Reserve has on more than one occasion stressed that ,with the exception of Sydney, every major capital city (and it would seem, in the regions) has housing prices that are some way below where they were a few years ago.

Wages, on the other hand, continued to grow on average across Australia last year by 3.4%.
Graph 2: Housing Prices
While the debate about the affordability of housing close to the centre of capital cities will of course drag on and on (as it has in London for decades now), the RBA’s rhetoric suggests to me that they see affordability as a non-issue right now.

Instead, the bank will sit reasonably relaxed over the coming months, with its finger poised above the ‘rate cut’ button, and will await with interest the next round of inflation data for the March quarter in 12 days time.

Most indicators seem to suggest that inflation will remain benign and well within the targeted 2-3% range.

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Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog

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