Monday, 15 July 2013

Housing madness

I have every sympathy for central banks trying to figure out whether strong house prices are a sign of monetary policy being too loose, or merely telling us that supply and demand are working out just as you'd expect in a tight market. It's always going to be a hard call. If I were in the RBNZ's shoes, I'd be inclined to think that the supposedly over-exuberant Auckland market is nothing of the kind: it looks to me like a textbook example of higher demand hitting inelastic supply, rather than an artefact of buyers hitting the market with over-generous credit.

If I were in the RBA's shoes, however, I'm not sure I'd come to the same conclusion about the Sydney housing market. What do you make of this? And bear in mind that the forecasters, the futures market, and the business community all think that the RBA's next move will be another interest rate cut. What do you think an inner city bomb site will sell for at even lower interest rates?

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