Why is this happening? And are these once-risky financial markets now perceived as a sure bet?<\/p>\n
These questions and the future of the Australian economy and 15 million jobs attached to it are what worry investment experts and economists.<\/p>\n
The rise and rise of asset prices<\/p>\n
Tracking the Australian property market’s upward momentum is straightforward.<\/p>\n
On the demand side, investment tax breaks, lower interest rates and a steady flow of migrants generate plenty of demand.<\/p>\n
Where are rates heading?<\/a><\/p>\n The Reserve Bank’s economic outlook suggests further room to cut interest rates, but it’s not all good news for most working-age Australians.<\/p>\n Indeed, the number of new investor loan commitments for dwellings rose 3.5 per cent in the June quarter<\/a>, which drove overall lending activity.<\/p>\n On the supply side, a chronic housing shortage, despite efforts from both state and federal governments to break more ground on housing, has also supported house prices.<\/p>\n Under the government’s lofty 1.2 million homes target, roughly 240,000 new homes need to be built every year<\/a> to meet growing demand, but we’re falling short of that mark by about 60,000 homes a year.<\/p>\n A shortage of stock is pushing up rents in Sydney and other capital cities. (ABC News: John Gunn)<\/p>\n The lack of available property is also pushing up rents, with Sydney and Brisbane leading the charge, according to property market analysis firm Cotality (formerly CoreLogic).<\/p>\n Cotality’s capital city rental value index rose 3.0 per cent in the year to July<\/a>, up from 2.7 per cent in June, marking the end of a 16-month run of moderating or stable rental growth.<\/p>\n Meanwhile, the share market has produced several record highs in recent weeks.<\/p>\n On Friday, the benchmark S&P\/ASX 200 index \u2014 the main index tracking the ups and downs of the market \u2014 surpassed 8,900 points.<\/p>\n That’s an all-time high, following several records this week and last.<\/p>\n It means the share market is up 22 per cent since it belly-flopped after US President Donald Trump’s so-called “liberation day” tariff hikes.<\/a><\/p>\n Bitcoin and gold, too, are also consistently at or approaching all-time highs weekly.<\/p>\n Analysts say there is a direct link between this asset price appreciation and record levels of liquidity, or cash, in the economy.<\/p>\n Central banks can increase levels of liquidity by lowering interest rates and buying bonds \u2014 anything that puts cash in the economy.<\/p>\n ‘Moral hazard’ at play?<\/p>\n It’s worth bringing up a bit of economic jargon at this point.<\/p>\n “Moral hazard” is an economic concept that describes the pickle firms get into when they know they’ll be bailed out \u2014 for example, by a central bank or government \u2014 if they make mistakes or take on too much risk.<\/p>\n Share market wipe-out ‘inevitable’<\/a><\/p>\n It’s been a big week for the ASX 200 and investors are nearing the peak of a hair-raising psychological journey. But some are peering through their fingers, wondering what’s coming next \u2014 and when?<\/p>\n You could argue moral hazard was created in 2008 when the US government bailed out some of Wall Street’s biggest banks with the “troubled assets relief program” and the Emergency Economic Stabilisation Act.<\/p>\n It set a global precedent that implicitly stated: If you make recklessly risky financial investments that eventually sour, governments and central banks will bail you out because the alternative is too horrific.<\/p>\n Central banks insist it’s necessary<\/p>\n But is there more going on here?<\/p>\n Is it possible that central bank “liquidity-at-the-ready” is not just emboldening companies to make riskier financial decisions, but a signal to investors that their investments aren’t as risky as they had thought?<\/p>\n I asked Reserve Bank governor Michele Bullock on Tuesday if she accepted that the RBA had effectively underwritten financial markets, taking away significant levels of risk for investors.<\/p>\n Michele Bullock says the RBA is focused on stability, not asset prices. (AAP: Dan Himbrechts)<\/p>\n<\/p>\n
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