It was just the thing the Reserve Bank didn’t want to see a day ahead of its board meeting today.
Official figures confirming that Australian house prices had one of their sharpest rises in recent years in the final six months of 2009.
It looks like a bubble and the rapid growth in Australian housing prices suggests it’s too frothy for our own good.
We will get a rate rise of 0.25% with a warning that more will follow.
A rise of 0.50% in fact wouldn’t surprise at all.
And we can’t say we haven’t been warned by the Reserve Bank that it will act quickly to sniff out bubblers of this kind.
RBA Government Glenn Stevens was very clear about that in a speech in Sydney last July (see below).
There can be no doubt that in the space of six to nine months the Australian housing property market has been transformed from being moribund, to explosive growth.
Figures from the Australian Bureau of Statistics confirmed that yesterday with house prices up a huge 13.6% in the year to December, with a rise of 5.2% happening in the December quarter alone.
In Melbourne prices soared by nearly 20%, a bubble if there is one.
The ABS figures, long criticised by some in the housing sector as being ‘too conservative’, were in excess of the 12.1% rise suggested by Australian Property Monitors last month, and the 11.1% increase claimed by RP data.
Amazingly, some economists turned around and said the ABS figures were too high.
The ABS figures are a preliminary estimate, but if sustained, they come close to matching the 14.0% rise in the year to December 2007.
The 2009 performance represents a substantial turnaround from the 4.1% fall in 2009.
The ABS said that In the year to December house prices rose in Melbourne (+19.7%), Darwin (+13.6%), Sydney (+12.8%), Canberra (+12.4%), Perth (+11.5%), Hobart (+11.0%), Brisbane (+10.9%), and Adelaide (+5.1%).
For the December quarter the 5.2% national rise came from Melbourne (+6.8%), Sydney (+5.0%), and Perth (+5.7%). There were also positive contributions from Brisbane (+3.8%), Adelaide (+2.1%), Canberra (+3.6%), Hobart (+4.3%) and Darwin (+4.9%).
After this report it’s a wonder why anyone is still wondering or complaining about the Reserve Bank lifting interest rates.
A rate rise of 0.50% would be justified today from the RBA on these house price figures alone.
They were shocking.
The first home buyers’ grants can’t be blamed for all the surge.
They have been restricted to cheaper suburbs in the major cities while the second half rebound in 2009 was primarily driven by surging demand in some of our most expensive suburbs.
The real action happened in the expensive seaside, river and inner city suburbs that took the brunt of the sell-off when property prices fell during the credit crunch in 2007-08 which hit the financial sector harder than anywhere else. Investment bankers, brokers, lawyers, accountants and others in this sector were among the victims of retrenchment and forced sales.
Property prices in suburbs like Mosman in Sydney, Brighton and South Yarra in Melbourne, Hamilton and Spring Hill in Brisbane, felt some of the pain. Now that’s being reversed.
RP Data.com’s head of research, Tim Lawless, said in commentary late last month:
“The strongest gains were recorded early in the year with national home values up 3.1 per cent over the first quarter of ‘09. The market was being led by first home buyers and consequently the most affordable end of the market saw a 3.9 per cent lift in values.
“Over the second and third quarters it was upgraders in the middle and the top ends of the market that generated the strongest gains.
"The top 20 per cent of Australia’s most expensive postcodes increased in value by 9.5 per cent over the last three quarters of the year compared to 4.1 per cent growth in cheapest 20 per cent of postcodes.”
Remember the warning from RBA Governor Glenn Stevens last year on housing when he said:
"A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices.
"Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run-up in prices.
"If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing.
"Not only would it confirm that there are serious supply- side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over-leverage and asset price deflation down the track."
Should the RBA lift rates by half a per cent today, or at a future meeting, we can’t say we haven’t been warned.
