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Aussie housing downturn unlikely to derail economy

Sydney

AUSTRALIA'S top central banker said on Wednesday a downturn in Australia's once-booming housing market was unlikely to derail the country's enviable record of 27 years of recession-free expansion and urged banks to ease credit supply.

As property prices cool and household consumption slows, the labour market has become particularly critical for the Reserve Bank of Australia's (RBA) monetary policy assessments, governor Philip Lowe said in Sydney.

"A further tightening of the labour market is expected to see a gradual increase in wages growth and faster income growth. This should provide a counterweight to the effect on spending of lower housing prices," he said.

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"The adjustment in our housing market is manageable for the overall economy. It is unlikely to derail our economic expansion."

Australia's A$1.8 trillion (S$1.72 trillion) economy slowed in the second half of last year but the jobs market is going strong with the unemployment rate at a 7-1/2-year low of 5 per cent.

Data out later in the day is expected to show the country's gross domestic product growth of 0.3 per cent in the final quarter of 2018, taking the annual pace to 2.5 per cent.

The RBA left interest rates at a record low 1.5 per cent for a 30th straight meeting on Tuesday and Mr Lowe said the current setting was "clearly stimulatory" and one that is "supporting the creation of jobs and progress towards achieving the inflation target".

On Wednesday, Mr Lowe reiterated the RBA's neutral stance on policy, saying the risk for rates to move in either direction appear "reasonably evenly balanced".

In his speech titled "The Housing Market and The Economy", Mr Lowe pointed to a large increase in the supply of homes as one reason for the property slowdown as real estate developers swarmed the market to build towering apartments.

For Mr Lowe, the current housing correction was not "surprising" after prices surged over 50 per cent in the five years to late 2017. Home values have since fallen about 9 per cent bringing them back to their level in mid-2016.

As a result, the demand for loans has eased. Data out last week showed Australian home loans rose 4.4 per cent in January, the weakest annual pace on record. REUTERS