RBA WARNS ON HOUSING INDEBTEDNESS

The latest minutes from the RBA Board meeting states "that there had been a build up of risks associated with the housing market". The minutes also reflect on how highly indebted households would deal with a shock from a combination of rising unemployment and falling consumption. Earlier ASIC chairman, Greg Medcraft in an interview with the Australian Financial Review stated that "he is quite worried" about the property prices in Sydney and Melbourne. "The long-term average income to average price ratio in housing is four to five times but at the moment it is at historic highs", said Medcraft. The year on year growth in house prices in both Sydney and Melbourne topped 10% and the surge in the last quarter was over 4%. 
The banks have started clamping down on investor lending - and all the major banks have raised their interest rates on housing. It is when the investors and buyers themselves believe that there is a bubble which is almost ready to burst, then it does not take long. Buyers would wait and investors would offload - resulting in oversupply of properties in the market and a fall in property prices.  

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