Chance of a sharp fall in house prices “remote” Stephen Koukoulas

A sharp fall in house prices remains a "remote" possibility, says Business Spectator economist Stephen Koukoulas.

He says weakness in new housing construction,  strong population growth and the ability for the RBA  to cut the cash rate even further will guard against this happening.

However, ‘The Kouk’ has expressed surprise at the recent dip in house values with RP Data’s daily index pointing to a 1.5% decline over the past two months, leaving house values up just 1.2% in net terms since the start of 2013.

In February, he tipped house prices to rise 10%  over 2013 as part of an "upward trend" after dwelling values rose 1.2% in January according to RP Data-Rismark.

He says he is sticking with this forecast "more or less".

The latest dip means house prices are still 5% off their peak from two years ago.

Koukoulas said if the price decline gathered momentum, the cash rate could fall to around 2% or even 1% in a “worse case scenario”.

Koukoulas says while it’s not clear what is behind the recent house price dip, he points to the recent fall in consumer sentiment and an “updrift” in the unemployment rate as to possible factors.

However, he draws a clear distinction with the house price collapses in the US, the UK, Ireland, Spain and says the Australian housing market is “fundamentally different” because these countries’ house price bubbles were accompanied by a housing construction boom.

“If anything, housing construction in Australia is in the doldrums, with new construction bouncing along at very low levels.

“Perversely, perhaps, this weakness in new housing construction is good news for now as it means there is little risk of a glut of property coming on to the market should there be a more worrying house price fall in the months ahead,” he adds.

Other factors preventing a sharp fall in house prices, he says are the recent decisions by the RBA to cut interest rates and “extremely favourable demographics” such as “especially strong population growth”.

He says the RBA can do a lot more on interest rates and is why it has maintained an easing bias.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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