I was in the fortunate position yesterday of attending an interesting speech by the RBA's Head of Regional & Industry Analysis. Though the story from the RBA was decidedly upbeat regarding Australia's position it was not exactly all beer & skittles. The rise in house prices was mentioned as a positive indicator and I didn't get the impression that he thought that the market was overheated at all, nor that it was a danger. The greater rise in apartment prices was put down to the dearth of supply coming on line. The RBA knows that this is due in large part to the banks not funding the developments. They are also watching the poor data on commercial building stats and are concerned that building is only holding up thanks to the stimulus (schools etc). There is still some structural weakness and they seem cognisant of the risks of hiking too fast & destabilising the recovery.
My impression is that he was cautiously optimistic whilst acknowledging that business investment is not really in a position to handle rapid rate rises (having had only half of the IR falls passed on). ACCI and other industry groups have certainly told the Bank that this month's 0.25% rise was premature. The RBA knows that only strong growth in the private sector will guarantee a sustained recovery and it should be said that, though not officially part of the RBA's agenda, it does have an eye on the $Au. Barring some extreme change in circumstances between now and then, I can't see mortgage IRs at anything close to 8% in 2010.
Then again, perhaps Glenn Stevens does have a fixation on housing finance as the prime economic lever in this country. We seem to as PIs, as does the media, but I suspect that the RBA is really looking at a broader economy.
nothing better than a statement from the horse's mouth. kudos.