Why the RBA can’t stop a slide in property prices
Is the property price boom finally over? It looks like it, going by the latest reports of falling auction clearance rates. In the past, the RBA has done its bit to try to stem a property price slide. But with global interest rates going up, and liquidity getting tighter, there may be little it can do this time.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Andre
:
Roger,
Is it possible that one of the reasons that a fall in the property market due to rising rates may be softened is, like the other countries that you have listed, rates globally can only go so high before it puts a handbrake on the global economy?
umeshbanga
:
I really cannot understand how one can justify such high prices and volume of loans. Investors are finding it hard to rent and forced to accept lower yield. Clearly average wages are still the same and with tighter bank lending, I think it is becoming evident as to how speculation can bring in irrationality. I guess logic does not support this but hard to determine when and by how much it will reduce. Even harder to properly value a property to determine what is the right price.
spiro
:
Hi Roger, as Aust Household Debt to Disposable Income reaches 140% (was 30% in the early 90’s) and Household Debt to Disposable Income at 190% (was 65% in the early 90’s) were do you believe these percentages should sit?
Look forward to your response and thank you in advance.
Roger Montgomery
:
I hold the view that the absolute amount is less important than affordability which in turn relates to wages/profits and interest rates.
Joe Rich
:
Thanks for the article Roger.
While there are lots of international factors at play, in the event of a credit crunch what’s to stop RBA from lowering rates – there’s still some dry powder so to speak before we get to 0.25% – to counteract impact of overseas tightening?
It would massively weaken the AUD, but sounds like that might be a side effect they would be willing to live with if it staves off GFC mach 2.