With nine per cent growth since May 2012 Australia’s housing boom is just beginning, according to the chief economist at HSBC Bank.
Paul Bloxham said the property boom, triggered by low interest rates, is part of the Reserve Bank’s plan to rebalance growth as the mining boom fades.
“Rising housing prices and low mortgage rates should help to lift housing construction and should support broader household spending by lifting wealth and confidence,” he said.
Mr Bloxham said any concern that the low rates are driving house prices too high are premature.
“Given the fall in housing prices between 2010 and mid-2012, prices need to rise solidly just to make up for previous losses relative to income gains over the same period,” he said.
“Prices are high, but not unusually high when compared to similar countries,” he added.
Mr Bloxham said there is a myth that Australia has exceptionally high house prices, but it isn’t true.
“This myth is perpetuated by ‘estimates’ of the ratio of house prices to income, which are often incomplete and overstated.
“Some suggest the ratio is seven or eight times, when in fact, the actual number is about half that,” he said.
The low interest rate environment has also lifted business confidence, which has risen to its highest level since March 2010, according to the NAB Monthly Business Survey.
Alan Oster, chief economist at NAB, said the rise in confidence could be attributed to a number of factors, with the low interest rates playing a part.
“The federal election result appears to have helped confidence further, but the gains were uneven,” he said.
“Low borrowing rates, rising consumer sentiment and a lower dollar may have also helped.”
While business confidence is up, business conditions remain weak. Although, according to Mr Oster, there have been promising improvements in forward indicators.
“The key issues now are whether the improved tone will continue and, if so, how long it will take to translate into business activity and investment,” he said.