Australian home prices to fall by up to 15 percent: Shane Oliver

Australian home prices are being protected at present by income support measures and bank payment holidays, according to AMP Capital chief economist Shane Oliver.

But higher unemployment, a stop to immigration and rent holidays will push prices lower into next year.

"Home prices are expected to fall by around 10 percent to 15 percent from their April high," he advised this week.

"Melbourne is particularly at risk on this front as its Stage 4 lockdown pushes more businesses and households to the brink," he added.

Notwithstanding this Oliver expects the RBA to leave monetary policy on hold for the sixth month in a row.

"Having provided massive monetary stimulus back in March the RBA is still in “watch and wait” mode, and the policy focus remains largely on fiscal policy.

"Given the uncertainty around the pace of recovery and the risks flowing from Melbourne’s lockdown, the RBA is likely to reiterate its dovish forward guidance on rates and note that it stands ready to do more if needed."

Oliver thinks it will ease further sometime in the next six months as its own forecasts have the attainment of full employment and the sustainable achievement of the inflation target as being more than two years away.

"In terms what it might do if it eases further it has all but ruled out negative interest rates, foreign exchange intervention and the direct monetary financing of government spending, but sees still lower but positive interest rates and the purchase of more government bonds as possible options.

"A rate cut to 0.1% would hardly be worth the effort which leaves more bond buying and more cheap bank funding as the main tools for any further easing.

" The RBA should also move more explicitly to inflation average targeting like the Fed.

"This would mean tweaking its forward guidance to commit to not increasing the cash rate until full employment is reached (as opposed to when “progress is being made towards full employment”) and inflation is sustainably within the 2-3% target band (as opposed to when its “confident inflation will be sustainably” in the band)."

Rate hikes are three years away, he concluded.