Wayne Swan rejects housing bubble claims as auctions clearances soar again

Federal treasurer Wayne Swan said over the weekend the extended first home owners’ grant will not end early despite warnings from Reserve Bank of Australia governor Glenn Stevens about a possible housing bubble.

The warning comes as figures from RP Data and Australian Property Monitors show housing prices have recovered to levels not seen since before the start of the global financial crisis last year.

Stevens said in a speech last week that the housing industry could experience another bubble if housing construction does not keep up with demand.

“If all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing… it would also pose elevated risks of problems of over-leverage and asset price deflation down the track,” Stevens said.

But Stevens also praised the first home owner’s grants, saying they have fuelled a pick-up in demand in housing finance numbers.

Swan pointed to Australian Bureau of Statistics figures that show a two-year high in residential construction, with building approvals rising by 9.3% in June in the biggest monthly increase in four years.

He also said the first home owner’s grant was helping fuel the construction industry and that to end it early would be a bad move.

“To pull that stimulus out now would be to pull the rug from underneath recovery,” Federal Treasurer Wayne Swan told the Nine Network on Sunday. “That’s an important thing because it is supporting asset values in a critical area when it comes to economic confidence.”

The first home owner’s grant currently stands at $21,000 for new properties and $14,000 for existing properties until 30 September, when it will be reduced to $14,000 and $10,500 respectively. After 1 January 2010 the grants will be reduced to their original levels.

Meanwhile, Melbourne has cemented its position as the auction capital of Australia after recording a 12th consecutive week of auction clearance rates above 80%.

The REIV released a statement in which it said the string of high results has led to a “strong increase” in prices, and that 2008 losses have nearly been recovered entirely.

The city recorded 329 sales with a clearance rate of 88%, with sales totalling $216 million. Volumes are high for the next two weeks, with 447 auctions expected next week and 519 the week after.

Sydney, the nation’s largest property market, recorded a clearance rate of 74%, with 102 properties sold totaling $65 million.

Brisbane recorded a clearance rate of 35%, with 22 properties sold totalling $3 million. Adelaide also recorded a massive 86% clearance, but only six properties were sold totalling $3 million.