- Deloitte Access Economics says the fall in property prices is the house price fall we had to have.
- The price of money is rising and the quantity of loans made is under pressure.
- The median Sydney home is losing more than $1,000 in value each week.
Australian economic growth will be solid despite a falling housing market but not as good as global growth, according to the latest quarterly Business Outlook from Deloitte Access Economics.
Deloitte forecasts 3.3% GDP growth in Australia this financial year, up from 2.9% last year, but will slip to 3.2% next year.
“Despite the house price fall we had to have, Australia’s growth has continued to accelerate, and our ongoing strength is forecast to be good enough — at a smidge above trend both this year and next — to keep job gains solid and unemployment edging down,” says the mian author Chris Richardson.
“And, with inflation gradually on the rise, that mix should see the recovery in wages continue, albeit at snail’s pace.
“But that will be a Faustian bargain. Alongside a lift in wage growth there’ll be a matching lift in interest rates, with the latter acting as an anchor on consumer spending, and hence on the wider economy, in the next couple of years.
“So although Australian economic growth will be solid, it won’t be quite as good as global growth, with the current drought adding to the short term headwinds in play.”
Richardson says the pain on house prices has already been evident for some time along the east coast of Australia.
The median Sydney home is losing more than $1,000 in value each week and losses on the median Melbourne home aren’t that different, he says.
And there may be more interest rate rises in store independently of anything by the Reserve Bank.
“And there’s a case to argue that the banks would already have hiked their rates (independently of the RBA) by more than they have already done if it weren’t for the adverse publicity impacts of that at a time when the big banks were already on the nose with the punters,” he says.
However, he believes that the more the banks raise rates without the RBA doing the same, then the less that the central bank will itself act.
“However, the net result is that the price of money (that is, interest rates) has begun to climb from its record lows, while the quantity of loans made may be more pressured than it was,” he says.
“That combination has had a particular effect on investors, given that regulators have been actively freezing them out of housing markets for some time now.”
Deloitte says NSW is the nation’s top performer despite falling house prices and drought stricken farmers.
“Infrastructure and consumer spending underpin current strength, but a peak is nigh in infrastructure, while sky high mortgages and weakening population gains pose problems for further out in time,” says Richardson.
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