Reserve Bank article

From: Felicity W.

Thought the following from The Melbourne Age was interesting, and certainly sounds a lot like some of the comments on the forum in recent months!
Keep smiling
Felicity :cool:

Reserve warns on home prices
By Josh Gordon
Economics Correspondent
July 19 2002

Australians will have to get used to far lower rates of return on their housing investments because the market has been flooded and demand is finally drying up, the Reserve Bank has warned.

In a special report, the Reserve said people's expectations of growth in house prices "will have to undergo some revision" because there were too many rental properties and population growth was not strong enough to keep fuelling the market.

The Reserve said property investment had become so popular that by last year almost one-third of all housing loans went to people buying a house to rent out rather than live in - double the level a decade earlier.

"One result of this is that Australian banks now have as much lending exposure to housing as to the business sector," it said.

The report, released yesterday in the Reserve's monthly Bulletin, said people investing in housing had been well rewarded. In real terms, house prices rose 41 per cent over the five years to 2002. Over the same period, Melbourne prices surged 70.5 per cent - by far the fastest rate in the nation.

But with rental vacancy rates rising rapidly, and rental yields - the ratio of rental prices to house prices - plummeting, the Reserve told investors to expect less in coming years.

"The large increase in supply of properties to the rental market which is occurring at present must raise some doubts about the prospects for returns on this type of investment over the next several years," it said.

The housing industry has urged the Reserve not to raise interest rates further, claiming the sector is facing a slowdown.

The report came as new figures from the Housing Industry Association showed the number of new houses and units sold in June collapsed by 22 per cent - a sign that buyers have been shaken by tumbling share markets and interest rate increases in May and June. Victoria experienced the biggest fall.

HIA spokeswoman Ruth Morschel said the industry was bracing for a further unwinding of the gains of the past 18 months. "The outlook... does depend a lot on how affordable new housing will be into next year," she said.
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