The Reserve Bank is keeping close watch on the softening Melbourne and Sydney property markets and the effect it is having on household wealth.
Head of economics at the RBA Alex Heath told an Urban Development Institute of Australia conference that confidence in recent economic data and the outlook for non-mining investment was increasingly positive.
“Housing price growth has been strong until recently in Sydney and Melbourne, where population growth has been strong,” she said.
“Given that housing accounts for around 55 per cent of total household assets, we are paying close attention to these developments.”
According to Ms Heath, demand for housing in Melbourne is still expected to remain quite strong because of equally strong population growth forecasts. This population growth is being driven largely by immigration.
CoreLogic data this week shows Melbourne house price growth had slowed to just 1 per cent to June, while at the same time last year this figure was in the double digits. That growth is expected to continue to slow this year.
James Hickey from Deloitte says the banking royal commission and uncertainty around new legislation could certainly put a dampener on the market but the slowdown in growth is more about a healthy correction to the unsustainable growth seen in recent years.
“When placed into perspective, the strong lending growth of the 2013 to 2016 period was never going to be sustainable long term,” he told The Age.
“The market recognises the need to take stock and find a new sustainable base for the long term.”
Michael Thomas, also from Deloitte, says the nation’s housing property market was still supported by solid demand.
“Taken together with the outlook for interest rates, slowing house price growth moderating the prospect of further capital gains, and restrictions on lending such as on interest-only loans and loans to investors as well as to lending to foreign investors, we expect a period of moderation rather than an abrupt adjustment,” he told The Age.