​Big four economist blames central bank for bubble concerns

by 16 Jan 2014
CBA’s chief economist, Michael Blythe, has placed the blame for the current housing market squarely on the shoulders of the central banks.

Record low interest rates determined by central bank policies are making loans more affordable but fuelling higher house prices, Blythe told the AFR.

“Concerns about a housing ‘bubble’ have lifted in tandem with dwelling prices,” said Blythe.

“The risk of a speculative price overlay highlights the concerns about rising investor interest in the housing market. But investor interest is a rational response to the environment created by central banks.

“Their actions have encouraged a search for yield, lifted risk appetite and created an environment where asset prices rise,” he said.

Figures show the dollar value of home loans rose 1.7% in the month of November, 26% higher than the same period in the previous year and the fastest growth in the past four years.

In order for the housing market to form a true bubble, however, Blythe says “rising prices need to be backed up by an acceleration in housing credit growth over a relatively short period; an easing in lending standards; and an expectation that prices keep rising”.

Latest figures show dwelling prices up 11.8% from mid-2012 and 3.5% above their previous peak in 2010.

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