Sydney Housing Bubble Unlikely to Deter RBA

Sydney is in the midst of a housing bubble but that won’t stop the Reserve Bank cutting rates again, a top economist says.  Unjustified property prices and investor speculation has created a bubble in Sydney that’s at risk of bursting, AMP chief economist Shane Oliver says.

Average prices in Sydney soared 13 per cent in 2014, almost double the rate of the next strongest city Melbourne, and are not slowing down, rising three per cent in March.  Other capital cities aren’t off the hook either – property prices are overvalued across the country, Dr Oliver says.

“Sydney looks a bit bubbly, there’s a bit of a mania going on in Sydney,” he told AAP.  “The risks of a bust are certainly there.”  But the RBA will still cut the official interest rate in May, and there is a strong possibility of further cuts after that, Dr Oliver said.  Plummeting commodity prices, the high Australian dollar and a deteriorating outlook for business investment mean the RBA aren’t short of reasons to cut.