CHART OF THE DAY: Why The RBA Doesn't Think There's A Housing Bubble

Photo: Getty/ Ian Gavan

House prices are rising and auction clearance rates are high in Sydney and Melbourne.

As a result there is much talk this week in the press about a bubble in prices. But the charts below from the RBA’s Financial Stability review released this week suggest that the buyers who are chasing these prices can probably afford them.

The top two panels in the chart above concentrate on high LVR loans. That is where a borrower puts down a smaller deposit and borrows more from the bank.

It means they have more leverage and less “skin in the game” – they are taking more risk.

As the RBA said:

Data on the characteristics of housing loan approvals suggest that banks have broadly maintained their lending standards since late 2011. The aggregate share of the value of banks’ housing loan approvals with high LVRs (that is, above 90 per cent) increased throughout the second half of 2010 and 2011, but has been fairly steady since then.

Important in the context of the bubble debate is that high LVR loans are either flat – in the 80-90% LVR band – and trending slightly lower, not higher, in the super aggressive above-90% LVR band.

So although the RBA has warned banks to maintain their lending standards, there isn’t any evidence yet that banks are lending wildly to more leveraged Australians chasing higher house prices.

If or when that occurs, the fear of a bubble might be real.

But for now the data suggests that home owners who are buying have a big equity buffer, suggesting – when rules about responsible lending in Australia are taken into account – that they can afford the higher prices.

Follow Greg McKenna on Twitter.

Follow Business Insider Australia on Facebook and Twitter

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.