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Economists say an RBA rate cut next week would stabilise house prices

29 May 2019

An interest rate cut next week would be the start of the end for falling house prices according to economists.

The AMP says an RBA rate cut would be part of a four-pronged stimulus that should see the property market correction come to an end, and prices bottom out by the end of the year.

The other three drivers are the Australian Prudential Regulation Authorities’ likely removal of the 7 per cent interest serviceability test on home loans, Labor’s election defeat and their subsequent negative gearing and capital gains tax changes falling through and the incoming First Home Loan Deposit Scheme.

AMP Capital economist Shane Oliver spoke to the Australian Financial Review.

“We have brought forward the expected low in home prices from 2020 to within the next six months,” he said.

Paul Bloxham from HSBC was one of the minority of economists who held off on calling for a rate cut but says he expects house prices to stop falling later this year.

“We see early signs that the housing market is starting to stabilise and expect that a range of factors, including expected cuts by the RBA and the recent prudential loosening, mean that housing prices should stop falling in the second half of 2019,” he told AFR.

“What is most impressive is that the housing market correction, which has seen Australian capital city housing prices fall by 10 per cent over the past 18 months or so, has been so orderly, with few signs of distressed sales or rising loan arrears.”

CoreLogic will also release its monthly home price index next week and their economist Tim Lawless says it is likely to show a further easing in the rate of house price decline.

“While it’s still early days, we have been seeing a trend over diminishing rates of decline across the housing market since early this year, suggesting the housing downturn was already losing some steam,” he said.

“The raft of positive news over the over the past week or so will help to provide a floor under housing price falls earlier than we expected, however there are still some headwinds around credit availability.”

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