HSBC: Australia's Housing Market Could Rise 10% This Year And The RBA May Need To Raise Rates To Curb It

Getty/Joosep Martinson

Many commentators have said Australian house prices have peaked for this run.

Not so according to HSBC Australia’s chief economist Paul Bloxham who in a note today said housing is so strong it could rise “around 10% this year” on the back of low interest rates and that “with the housing market still booming, the RBA is unlikely to cut further; indeed, rates may need to rise to contain it”.

It is hard to disagree with his outlook for rates given that any notions that the RBA needs to cut (including my own) are being washed away with the recovery in consumer sentiment and the attendant reduction in economic uncertainty in the Australian economy.

Specifically on housing Bloxham says monetary policy is doing what it is supposed to do – supporting the economy and aiding economic transition.

But he worries “the central bank needs to be wary of creating a build-up of excessive risks along the way. And, while we remain of the view that Australia does not currently have a housing bubble, it seems likely that if the current housing market trends were to persist for too long, there would be a risk of inflating one.”

With rates at record lows for 12 months now, Bloxham highlights the risk that the RBA falls into the “trap of leaving interest rates ‘too low, for too long’ and driving excessive risk taking in the housing market”.

So no rate cuts and an increasing risk of higher rates from the RBA. It’s making those fixed rates below 5% look very attractive.

The Mid-year pause in price appreciation has ended – Bloxham

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