RBA Wants to Deflate Housing Bubble Without Bursting It

Australia is attempting to let the air out of a housing bubble without also deflating a vital source of economic growth or stressing a deeply-indebted household sector.

It’s a balancing act few others have pulled off and there is scant room for error as the country is already struggling with the aftermath of a once-in-a-century mining boom.

Adding to the stakes are record levels of household debt, whose ratio against disposable income is even higher than that of the United States when the market there collapsed in 2007. This has left policy makers in an uncomfortable bind.

The Reserve Bank of Australia (RBA) has made clear its reluctance to cut interest rates again for fear of overheating the market. But neither do they want home prices to fall in a way that would stress over-leveraged owners and potentially deal a damaging blow to the economy.

“This leaves a sense that it will be hard to get the Goldilocks adjustment the RBA would like, which stabilizes risks without snuffing out the growth contribution from housing,” said Ben Jarman, an economist at JPMorgan.

via CNBC

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza