RBA economists modelled 15 percent house price falls amid market shutdown consideration

Staff reporterJune 18, 20200 min read

Internal documents from the Reserve Bank of Australia show its economists modelled house price falls of as much as 15 per cent during the COVID-19 shutdown.

Economists working within the Reserve Bank of Australia also considered the merits of halting established home sales amid the market disruption caused by the pandemic.

Reserve Bank economists considered urging the Federal Government to shut down the real estate industry, "pausing" sales to avoid perceptions of a coronavirus-inspired housing market crash.

In April, economist Nick Garvin wrote to colleagues, warning them the RBA should stop discussing the housing market as if it were operating normally, and calling for a halt — as happens to stock market trading in emergencies. 

"I think it's dangerous for regulators to be reporting on housing prices as though the market is currently functioning," he wrote.

Garvin noted shutting down real estate sales would send a statement that "we're in a different category of situation" and that normal reporting of clearance rates and average prices was "misleading".

"It's become clear that there has been a big drop-off in demand for new housing," wrote assistant governor (economic), Luci Ellis, in notes which were obtained by theABC through a Freedom of Information (FOI) request.

A sharp fall in house prices was forecast in a note on April 18. 

"Housing prices are expected to decline by around 7 per cent over the next year. Prices are expected to remain around 10 per cent lower than at the February Statement over the forecast horizon," it read, putting most of this down to a loss of confidence.

It forecast the fall in house prices could be as little as 2 per cent in the best scenario, "in the downside [worst scenario] prices fall by 15 per cent".


Staff reporter

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