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Tuesday, 1 October, 2002, 09:11 GMT 10:11 UK
Housing market overdrive in Australia
New apartment blocks on Australia's Gold Coast
The housing market has taken off
New houses are springing up at a breakneck rate across Australia, raising fears over the house market boom, and leaving central bankers facing an interest rates dilemma.

Approvals for new homes leapt by 23% in the year to August the Australian Bureau of Statistics said.

News of the rise, the largest in eight years, came as the Reserve Bank of Australia held its latest monthly meeting to decide on interest rates.

With the global economy weak, the bank would under normal circumstances be seen as unlikely to raise rates from the current 4.75% level.

But the housing market surge could force the bank's hand.

"We have a thorough-going housing boom under way... which is going to demand a response from the Reserve Bank - if not this month, then next month, said John Edwards, chief economist at HSBC in Sydney.

Racing ahead

The acceleration in housing starts in August surprised analysts, and overshadowed a more muted 0.2% increase in retail sales.

"The building approvals are beyond belief," said Simon Calder, chief economist at JB Weare.

"This is the highest level since 1994, and it's come at a time when the cycle appeared to be fully mature."

The data was "only going to intensify the hand-wringing" at the Reserve Bank, said Michael Blythe at the Commonwealth Bank of Australia.

"Clearly we're heading in a direction where things are going too far, if we're not there already," Mr Blythe said.

"Whenever you move too far there's a painful correction at some point down the track."

One boom drives the other

As has happened elsewhere, including the UK, the rise in house prices and the relatively low interest rate has driven the retail boom.

Homeowners are remortgaging and using the proceeds to fund their lifestyles, or alternatively happily loading on additional consumer debt.

In the meantime, investors are piling into the housing market because of the global slump in share prices.

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 ON THIS STORY
Tom Vosa, National Australia Bank
"Price ratios look quite large"
See also:

12 Sep 02 | Business
03 Sep 02 | Business
08 Aug 02 | Business
05 Jun 02 | Business
21 Feb 02 | Country profiles
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