The head of the Reserve Bank has warned Australians to be careful when borrowing and making investments in housing, as boom times don’t last forever.
RBA Governor Glenn Stevens says a rise in house prices, as the market is currently experiencing, is usually followed by a fall.
Speaking to a business lunch in Brisbane, Mr Stevens used the recent experience in south east Queensland’s housing market to warn of fluctuations in real estate.
“Part of the story here is that in an earlier environment of fairly easy access to credit, dwelling prices rose too high relative to incomes in some areas,” he said.
“There was also perhaps, in some instances, too much construction of the wrong sort of dwelling.
“Even if a full-blown crisis does not eventuate, as was true of Australia, overdoing it on housing on the way up is usually followed by a fairly extended period of working off the problems.”
Mr Stevens said the price of a Brisbane dwelling was historically about 60-65 per cent of those in Sydney, but at its peak a few years ago Brisbane prices were up towards 85 per cent of Sydney levels.
They have now fallen back to the 60-65 per cent of Sydney levels.
“The cycle has taken about a decade,” Mr Stevens said.
“That the cycle can be so drawn out is a salient lesson, including for those outside Queensland.
After growing at an annual average pace of 12 per cent between 2002 and the peak in late 2009, house prices in Brisbane fell when credit conditions tightened during the global financial crisis, and remain around five per cent below their peak, he said.
“At present there are welcome signs that the Queensland housing sector is now lifting off the bottom. But this has been a long cycle,” Mr Stevens said.