 Housing values offer mixed fortune
The Reserve Bank of Australia warns that if property prices rise too high in coming years, it will be the wealthy that benefit with the low-income households the ones that will suffer.
While the rapid rise in Australia's house prices has slowed in the last five years, the ratio of income to mortgage is still quite high compared to previous decades, warns the RBA. This higher ratio can cause mortgage stress for many households and affect any financially vulnerable borrowers harder.
The Australian Bureau of Statistics has released figures showing that the weighted average price for property rose 4.2 per cent for the June quarter, and only dropped 1.4 per cent for the year.
Over the waters, in other major economies, the US and Britain for example, have seen house prices crash by up to 20% due to the global economic crisis. Back at home, our housing market is enjoying modest increases in values.
"When the price of housing rises, higher-income households tend to benefit at the expense of lower-income households," said the head of the RBA's Economic Analysis Department, Anthony Richards.
If the ratio of home prices to income is high, Mr Richards warns that financial pressure is increased in other household spending for the home owner or renter. He was speaking at the Committee for Economic Development of Australia in Sydney yesterday.
The current improvement in Australia's housing affordability has largely been due to low interest rates and while Australia avoided major falls in housing values seen overseas, too much growth can be "undesirable" said Mr Richards.
Renters can also struggle with increasing values as rents increase and a larger percentage of income is spent in rent. Rental stress can be just as common as mortgage stress in some areas.
The record low interest rates, along with government stimulus packages have been helping housing affordability in Australia however interest rates are set to rise early next year, the boost to the first home owner grant is due to end, and what effect this will have on the property market is unknown.
The RBA is due to meet next week for their monthly policy meeting. It is expected official rates will be kept on hold at 3 per cent for another month, but rises are forecast as early as November.
Banks are already predicting imminent rate rises from the RBA and have started lifting rates for fixed rate loans.
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