The Australian housing market woes are set to continue, with the RBA’s top boss confirming they will not stop falling house prices.
In a grim update for property owners, RBA governor Michele Bullock used her time at the Committee for Economic Development of Australia (CEDA) fireside chat to explicitly rule out moving on rates as house prices slump.
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“One point to make upfront here, we don’t target housing prices,” she said.
“We do observe closely what’s going on in the housing market because it is one area that monetary policy has an impact.
Ms Bullock said the way the central bank thinks about the housing market is the impact on wealth, which can stop spending in other areas of the economy.
RBA governor Michele Bullock says house prices are not part of their remit. Picture: NewsWire / John Appleyard
Her comments come ahead of a critical September interest rate meeting where the central bank is widely expected to lift interest rates again.
This would be the fourth interest rate hike in the cycle taking the cash rate from 3.60 to 4.60 per cent, which would be the highest level since the global financial crisis.
While taking part of the blame for the housing market shaving its fastest fall in four decades, Ms Bullock said the tax changes which were brought into effect in May also stopped investor activity.
“You can see very directly the impact of the tax changes because you can see housing approvals for investors have just dropped.,” she said.
“They’ve dropped for everyone, but they’ve really dropped a long way for investors.
“It has changed the dynamic for investors whether it’s worth them investing in housing or not.”
However, Ms Bullock said house prices had surged since the beginning of Covid and were now coming down from “a very high base”.
“At the moment, if you look at how it’s correcting relative to other corrections, and the downturn is sort of in the lower range of downturns in the past, but it’s certainly not out of the ballpark of the sorts of downturns we’ve seen in the past,” she said.
Ms Bullock said the falls in house prices come from a high price. Picture: NewsWire / John Appleyard
Official figures from the Australian Bureau of Statistics shows the total value of the $12.7 trillion property sector has fallen by $34.1bn by June.
Since then, REA Group figures show the housing market has now entered its fifth straight month of decline, down 0.2 per cent in August.
National house prices have now dropped 2.7 per cent from peak to trough since March, although they are still up 1.8 per cent over the last year.
AMP chief economist Shane Oliver told NewsWire this is just the tip of the iceberg, with up to a trillion dollars expected to come off the market.
“There’ll be a lot more to come, the downtrend is only just starting,” he said.
“Even allowing for data that has already been reported there is more downside to show up in the current quarter and of course the current quarter has seen an acceleration in price falls.”
Myth interest rates are driving inflation
During her fireside chat. Ms Bullock also denied higher interest rates are driving inflation.
It comes amid speculation the RBA will lift interest rates next week. .
Fuel prices surging once more amid ongoing tensions in the Middle East and stronger inflation data were highlighted in the forecast.
Speaking on Tuesday, Ms Bullock said there was a misunderstanding that “higher interest rates cause higher inflation”.
RBA governor Michele Bullock says higher interest rates aren’t driving inflation. Picture: NewsWire / Nikki Short
“I want to distinguish here between what people might think of as their cost of living – for people with a mortgage, their cost of living, if you like, would include what they’re paying on their mortgages,” she said.
“So, as interest rates go up, they see what it costs them just to live now as going up. Inflation is a different thing to that.
“Inflation is about what’s happening to prices in the economy, not interest rates.”
Inflation hits vulnerable Australians the hardest. Picture: NewsWire / George Chan
‘Supply shock’
Reflecting on her tenure so far, Ms Bullock said it had been a “wild ride” amid global disruptions and, jokingly, that she hoped the rest would be “plain sailing”.
From the Russian invasion of Ukraine to Donald Trump’s trade tariffs, Ms Bullock said they were “all shocks to the supply side of the economy”.
“Monetary policy can deal with demand shocks, but the supply side of the economy, when you get a supply shock, your trade off worsens,” she said.
“When you have a series of supply shocks like we’ve had and inflation just increases and then it drops back, then it increases again.
“The concern that we have is that it might get embedded in inflation expectations of households and businesses, and therefore it might become self-fulfilling.”
