Australia’s “white-hot” housing market is the key economic risk for its central bank to manage but a collapse in house prices is not on the cards, a US institutional broker says. Australia’s economic outlook this year was strong, leaving the country in a “unique position” among developed markets, most of whom were battling flood and commodity inflation, New York based BTIG LLC said. BTIG chief market strategist Mike O’Rourke said a number of supply shocks had ignited food and commodity inflation across the world but it would be a mistake for global central banks to lift interest rates to contain it.
“Australia has to deal with the food inflation coupled with the white-hot housing market, which I believe is 20 per cent of Australian CPI (consumer price index),” he said. The Reserve Bank of Australia’s (RBA) top priority should be to take the heat out of house prices, which now pose the key risk to the local economy, he said. House prices will not collapse, but should soften in 2011, Mr O’Rourke said. “ I have no reason to believe a housing collapse is imminent, but I would be watching for signs of weakness”. “With the exception of housing froth, Australia otherwise looks good”.
Published in The Newcastle Morning Herald