It's a housing boom, not a bubble

The housing market is at the start of a boom and not in a bubble, with any such concerns premature, according to economists at HSBC.

The housing market is at the start of a boom and not in a bubble, with any such concerns premature, according to economists at HSBC.

But the risks of inflating a potential bubble could see the Reserve Bank become reluctant to cut rates further, the economists Paul Bloxham and Adam Richardson said in a research note.

They said the rise in prices was trickling through to housing construction growth.

"Ideally, the RBA would like to see housing construction pick up without a housing price boom," they wrote. "But developers and households are unlikely to build new houses unless prices are rising. In this way, a housing price boom is a necessary 'evil'."

The economists said previous falls in house prices between late 2010 and mid-2012 meant prices needed to rise strongly to make up for previous losses.

"The starting point is also not as worrisome as some think - prices are high, but not unusually high when compared with similar countries. As we have said many times before, Australia does not currently have a housing bubble."

Sydney overtook Perth to record the strongest weekly house price gains among the states and territories last week, rising 0.9 per cent week-on-week, said an ANZ housing market report released this week.

Over the past 12 months, Sydney recorded the strongest trend growth of 8.5 per cent year-on-year, the ANZ data showed. Perth prices were second strongest - a 7.5 per cent lift. Melbourne house prices are up 6 per cent over the year. Brisbane and Adelaide were much smaller, 1.5 and 0.7 per cent respectively.

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