Don’t expect housing prices to always rise: Glenn Stevens

Don’t expect housing prices to always rise: Glenn Stevens
Jessie RichardsonDecember 7, 2020

Challenging the myth that property will always appreciate, Reserve Bank of Australia governor Glenn Stevens has warned people against expecting prices to always go up.

At a recent speech to the Economic Society Australasian Meeting and the Australian Conference of Economists in Hobart, Stevens said: “People should not assume that prices always rise. They don't; sometimes they fall.”

Though the value of loan approvals over the past year rose by around 20%, Stevens noted that housing loans as a proportion of housing credit outstanding, while above 2011 levels, is not particularly high on a long-term basis.

“It's only a little above 2008 lows, in fact. The growth of credit outstanding for housing is about 6–7% per annum, or slightly above trend nominal income growth. It's hard to mount the soap box to complain about that pace,” said Stevens.

If the recent slowdown in house price growth continued, Stevens said it would be to the benefit of the economy.

“Some segments of the housing market do appear to have been calming down lately. Prices have flattened out in several cities and even in Sydney the pace of increase has lessened. It remains to be seen whether this slower pace of growth in dwelling prices is temporary or more persistent,” said Stevens.

“It would in my opinion be good, for a range of reasons, if it did persist for a while. If the next couple of years saw an unremarkable performance on prices, and construction staying at the higher levels that will clearly be reached over the coming year, it would be an outcome that would contribute to a balanced growth path for the economy and to housing more people at manageable cost,” he said.

Stevens’ comments on the high Australian dollar, coupled with productivity indicators, has led to speculation the Reserve Bank will cut interest rates as its next move.

“But lest there be any uncertainty about this, let me be clear, again, that the exchange rate remains high by historical standards. There is little doubt that significant parts of the trade-exposed sectors still find it quite ‘uncomfortable’: it continues to exert acute pressure for cost containment, productivity improvement and business model change,” said Stevens.

“When judged against current and likely future trends in the terms of trade, and Australia's still high costs of production relative to those elsewhere in the world, most measurements would say it is overvalued, and not by just a few cents.”

Market Economics managing director Stephen Koukoulas yesterday noted retail sales were down 0.5% for May, with expectations of another 0.5% fall over June.

In combination with a “weak” upward trend in building approval data and a “large” trade deficit, poor Consumer Price Index results for the June quarter (due later this month) “will make the August meeting of the RBA Board 'live' to a rate cut,” wrote Koukoulas.

It appears he is not the only one predicting a potential rate cut, with RP Data’s Cameron Kusher tweeting the following this morning:

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