Jacob Greiber & Ben Potter| 13 June 2018| Australian Financial Review
Reserve Bank of Australia governor Philip Lowe has downplayed concerns over falling property prices, saying they are still 40 per cent higher in Sydney and Melbourne than they were just a few years ago.
“As long as it’s not a very large decline – it’s manageable,” Dr Lowe said on Wednesday.
Australia has gone through “plenty of periods” in the last 20 years where house prices – particularly in the big east coast capitals – have declined by as much a 12 per cent, he said.
“That’s what happens in the housing market – we have these big run-ups, prices stabilise, sometimes they might fall, stabilise and then they’ll rise again.
“We are going through one of those events at the moment, particularly in Sydney and Melbourne.”
The governor’s sanguine outlook for property comes amid growing signs the price boom of the last few years has swung into reverse, driven by a combination of falling credit growth, sliding demand from China, and a regulatory crackdown on investor lending.
Sydney leads the downturn with prices falling 4.2 per cent in May from a year earlier, when they were surging at an annual pace of 17 per cent. Auction clearance rates have collapsed below 50 per cent to the lowest since early 2016.
Policy makers remain unmoved by the declines because there is little evidence the decline in prices is generating any financial stability concerns. Mortgage loan arrears rates haven’t risen and the capacity of households to pay hasn’t been hampered by a major shock, such as a surge in the jobless rate.
Dr Lowe suggested the surge in construction over recent years was another factor behind lower prices.
“There’s been a lot of additional supply come onto the market – the rate at which we’re adding to housing stock is the fastest in quite a few decades.”
The supply surge is now turning into lower prices.
“That’s what the market should predict will happen and that’s what’s actually happening.”
Dr Lowe said Australians shouldn’t necessarily expect house prices to continue rising at the rate they did recently, or worry if they come down “for a period”.
“I think this is manageable. Remember, it wasn’t that long ago that people were worrying about housing affordability. That was the number one political issue two years ago – house prices were rising too quickly.”
Besides, he added, house prices in Sydney and Melbourne are still up 40 per cent on where they were at the start of 2014.
“There’s a lot of media coverage of house prices going down but I think you’ve got to have a longer term perspective.”