Evidence decline in house prices has reached an end: RBA's deputy governor Guy Debelle

Evidence decline in house prices has reached an end: RBA's deputy governor Guy Debelle
Evidence decline in house prices has reached an end: RBA's deputy governor Guy Debelle

The RBA deputy governor Guy Debelle has noted that the housing market downturn seems to have come to an end.

Debelle, who was the keynote speaker at the 14th Annual Risk Australia Conference in Sydney on Thursday, said there is evidence the decline has reached his conclusion.

"If this is the case, the drag from declining wealth and turnover will dissipate," Debelle said.

"Housing market conditions may even start to support consumption growth again in the period ahead."

Debelle suggested the dynamics of the housing markets have affected the consumption outlook.

"Overlaid on the slow growth in household income has been the effect of the decline in housing prices," Debelle said

"Some part of that effect comes through a wealth effect: as housing prices fall, homeowners' wealth declines, which reduces their spending.

"Some part of the effect comes through the lower housing turnover that has accompanied the decline in housing prices.

"Housing turnover is around its lowest level in more than 20 years. When people move house, they spend more on things like household furniture."

Debelle suggests households are benefitting, in aggregate, from the effect of lower interest rates.

"While the income of households with deposits is lower, the household sector as a whole has around twice as much debt as deposits. Hence the cash flow boost from lower mortgage payments outweighs that of lower deposit rates.

"Again, there is uncertainty about how much of that cash flow boost will be spent or saved, including in the form of paying down mortgages faster.

"If households use the additional cash flow to pay down their mortgages, it does bring closer the date that they will be more comfortable with their balance sheets and return to more regular spending habits.

Debelle says the RBA are expecting the GDP growth outcomes to strengthen after a run of disappointing numbers.

"This outlook is supported by a number of developments including: lower interest rates, the recent tax cuts, a depreciation of the Australian dollar, a brighter outlook for investment in the resources sector, some stabilisation of the housing market and ongoing high levels of investment in infrastructure," Debelle added.

Tags: 
Rba Insights Housing Downturn

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