Today CBA chief economist Michael Blythe joined the other big guns of Australian economics in decrying the need for concern about the recent rise in house prices.
The point of monetary policy, Blythe says, is to stimulate activity. One of those ways is through housing, Blythe says, and the RBA knows this and would have factored it into the equation.
Blythe cuts right to the chase:
You do not embark on a mission to stimulate housing activity without expecting some sort of price impact! Rising dwelling prices are indeed part of the transmission mechanism. Nor is the RBA alarmed…
Concerns about a potential housing “bubble” have lifted in tandem with dwelling prices. The momentum behind dwelling price growth has risen. But that momentum is not exceptional by historical standards. And “bubble” conditions require more than just the bald fact of an acceleration in house price growth.
The emerging consensus among economists is that in a true bubble, rising prices need to be backed up by: an acceleration in housing credit growth over a relatively short period; an easing in lending standards; and an expectation that dwelling prices keep rising. The evidence on this bubble checklist is far from compelling.
No acceleration in demand for credit – as we saw in yesterday’s housing finance figures – and a smaller proportion of first home buyers in the market suggests that the recent rise is just pent-up demand which will fade in time.
Good news from a macro-prudential perspective – no bubble and no need for a response from the RBA, which would mean raising rates.