The Housing Industry Association (HIA) released an informative (though possibly naively optimistic) note yesterday titled A Portrait of Australian Home Prices, available at the HIA website, which is basically a message to the RBA that “There’s nothing to see here.” This follows concerns expressed by the RBA and some economic commentators about strong property price growth, particularly in Sydney. After analysing the true real growth rate of housing prices over the last ten years (i.e. controlling for inflation and it appears quality improvements), the HIA concluded:
In summing up the state of Australian home prices, it is important to remember that significant price growth is largely confined to the Sydney and Melbourne markets. In the case of Sydney, this follows a decade during which home prices were flat relative to inflation. The geographic reach of the current price upturn is markedly narrower than during 2002-03 and 2007. Apart from Sydney, price to income ratios are within normal ranges in the capital cities, although Melbourne is creeping towards the high end by this measure.
The HIA has done a good job in this note, but I doubt the RBA will be comforted by the fact that “significant price growth is largely confined to the Sydney and Melbourne markets”, given Sydney and Melbourne make up a large chunk of the Australian economy. Luckily, the figures for Brisbane look more reasonable than for Sydney and Melbourne, so there is less chance of a big correction here.