Since September 2008 the Australian cash rate has tumbled by 425 basis points, as the Reserve Bank took decisive action to help soften the blow of the global economic crisis.
Over the same period, the average standard variable home loan rate has fallen by around 375 basis points, making housing more affordable than it has been in years.
But many are concerned that increased activity at the lower end of the market could trigger a blowout in prices – which are already amongst the highest in the world relative to incomes.
Almost half of the 417 respondents to a recent Mortgage Business straw poll – 47 per cent – have voiced their concern about a price bubble.
But despite talk of a surge in activity, ABS data has revealed that the total value of monthly home loan commitments in January rose by just under 10 per cent compared to September last year – a reasonable pick-up but by no means a surge.
Any increase in February activity will be revealed when the ABS releases its April report.
John Edwards, the CEO of property analyst Residex, said tighter credit availability had lessened the likelihood of a property bubble.
“Yes low interest rates will bring buyers back into the market,” he told Mortgage Business, “but there is a new limitation out there – credit. Banks are definitely tightening up on lending and this should help to subdue any property bubble.”
A look at changes to lending policies announced over the past few weeks backs this up. CBA and ANZ have announced they will now only lend up to a maximum of 90 per cent LVR while most major lenders have recently introduced genuine savings requirements around the 3 to 5 per cent mark.
But Mr Edwards expressed some concern about the level of activity at the lower end of the market, driven by first home buyers.
“There is not enough research available to indicate first home buyers are paying the correct prices for these houses. They could be overbidding.”