The Reserve Bank Governor has declared the southern housing downturn a ‘positive’ thing – which will “allow more people to purchase their own home” – as he evened the odds of a rate cut.
In a statement to the NSW House of Representatives Standing Committee on Economics this morning, RBA Governor Philip Lowe backtracked on his view that the next rate move would be up, saying “the probability that the next move is up and the probability that it is down are more evenly balanced than they were six months ago”.
The comment came after Dr Lowe talked up the positive effects of the housing downturn to the committee.
“I understand that these swings in housing prices are difficult for some in our community. We should, though, take some reassurance from the fact that our economy and our financial system are resilient,” he said.
“This adjustment in the housing market is not expected to derail the economy. It will put our housing markets on more sustainable footings and allow more people to purchase their own home. So there is a positive side too.”
MORE: ‘RBA to cut rates twice in 2019’
Richlister’s million-dollar discount
If these army water tank walls could speak
Dr Lowe said declining housing prices “make some people feel less wealthy, so they spend less, although this effect doesn’t look to be very large”.
He said RBA was keeping an eye on any impact on spending and construction activity but “we do, though, need to keep things in perspective”.
“The adjustments in the Sydney and Melbourne housing markets are occurring at a time of low unemployment, low interest rates and strong population growth. What we are witnessing is largely the working through of shifts in supply and demand for housing due to structural factors.”
In both Sydney and Melbourne, “it took a long time for supply to respond to faster population growth, so prices went up”, Mr Lowe said, and now supply had responded, reversing “some of the earlier increase in prices”.
FOLLOW SOPHIE FOSTER ON FACEBOOK