Saturday, November 20, 2010

RBA confirms death of housing

In a speech this week, RBA Deputy Governor Rick Battelino offered southern Queensland property investors a few crocodile tears before driving this spike home:
While there are differences between sectors and between regions, the Australian economy overall is doing well. We expect that the economy will continue to grow at a solid pace over the next couple of years, with growth picking up to an above-trend rate towards the end of this period. This will be accompanied by further increases in jobs and falls in unemployment.

With the economy now having grown more or less without interruption for about 20 years, it is understandable that spare capacity is limited. This means that the economy cannot grow much above its potential rate without causing a rise in inflation. With a large amount of money continuing to flow into the country over the next couple of years as a result of the resources boom, the challenge will be to manage the economy in a way that keeps economic growth on a sustainable path, with inflation contained. This is what the Bank is trying to do.

As this blogger has argued before, good news on the economy is now bad news for housing. The endless China boom meme now equals rate rises in a falling housing market.

Whether this means an immediate bust is still up for grabs, but as observed previously, this is largely irrelevant anyway. Whether its a bust or the slow decay of inflation, Australia's mortgage led growth era is finished.


The Lorax said...

So Ric "boom boom" Battelino is saying we've had 20 years of uninterrupted growth, and the China boom is going to give us (at least) another 20. That's 40 years without a recession. Has that ever happened ever? Has the lucky country finally defeated the business cycle?

David Llewellyn-Smith said...

That is a very good question. The same idea did occur to me as read it. Especially what Schumpeter and the Austrians would have to say on the matter.

If we've had no flushing out of maliinvestment for twenty years, you would expect to see a great, nay, vast, mountain of wasted capital.

Now, where might we find that...

heyworth said...

As the baby boomer property investors retire, it is inevitable that they will eventually sell low-yielding property investments in favor of higher yield investments to fund retirement income. This will inevitably lead to great downward pressure on house prices.

Anonymous said...

The RSPT would have cooled the rapid rise of mining investment. It is ironic that the many people who opposed the RSPT are now complaining about rising interest rates caused by rapid mining investment.