A friend of mine forwarded me this article and wanted my opinion on it (I’ll assume because I like to talk about economics – even though my personal flavor of econ is no where in the vicinity of what he’s reading). Unfortunately I’m not sure I have much an opinion.
More data… he’s got a piece of property in Australia “valued” at around $450,000. He says when he bought it he paid about $320,000. It’s a 2-bedroom “unit”. He doesn’t think it’s actually worth the $450,000, and I nodded my head.
He also mentioned that “he read” about Australia’s economy being heavily linked to China’s economy because of some resource deal; anyone familiar with that?
This is all so vague and I apologize for that. Any insight/clarification is appreciated. If you want me to pass along a question to him I will.
I think the article is largely correct, except that the Reserve Bank of Australia (RBA) just lifted rates again today, and the cash rate now sits at 4.5%. You can read the official reasons for the rise here:
Basically, the RBA is arguing that the economy has recovered from the GFC and will continue to grow more strongly in the future. In part, this is due to our favourable terms of trade (increase in export prices relative to import prices, especially commodities). Australia is a major commodity exporter (e.g. coal, iron ore, alumina, LNG, etc.) mostly to Asian countries, but especially to China. The bank is concerned about signs of rising inflation, and so rates have been raised. Should China’s economy suddenly grind to a halt, Australia’s economy will be hit too.
In relation to housing, the bank says “Credit outstanding for housing has been expanding at a solid pace. New loan approvals for housing have moderated over recent months as interest rates have risen and the impact of large grants to first-home buyers has tailed off. Nonetheless, at this point the market for established dwellings is still characterised by considerable buoyancy, with prices continuing to increase over recent months.”
Do you know what “considerable buoyancy” means? I’ll tell you. In the year to March 2010, house prices in Australia rose by 20%! And that was the average, some cities increased by more than that. The highest was Melbourne: a whopping 27.7%. In just 12 months! Check it out here: