RBA predicts a potential 40 per cent drop in house prices

Australia’s big weakness exposed

We’ve been riding on wave that’s seen us boom for decades – but now it could all come crashing down.....

 

Headline sounds bad, but best to read the full article to put things in perspective.

This is an article about the RBA’s (very important) ‘what if’ scenario testing.

In this case ‘what if’ house prices dropped by 40% and unemployment more than doubled to 8% (currently nearer 3%).

This would curtail spending and have a flow on effect to employment - and could cause a high percentage to go to subsistence-level living.

But it’s just a potential scenario.

 

Yeah you really need to read the article.
It’s scare tactic headlining with very little substance. Heck even the writer goes on to say government would step in before that would ever happen.

 

Isn't that happening already?

Housing bubbles are a one trick pony.

Money doesn't grow on trees. Our housing bubble is acting like a hoover, sucking up discretionary spending that will result in high unemployment. The only way the government has been able to mask its effects is through credit growth. As long as households borrow more next year than this year, we can keep that spending going. The result is Australia has the 2nd highest level of household debt in the world.

And as a one trick pony, all housing bubbles eventually burst. With high levels of household debt, all it takes is a pandemic.

 

Yea the headline of the article, as with most headlines, is overly dramatic. This could happen of course, however it'll be interesting to see it tested with current low historical rates which will keep a natural floor under prices I think. The resources sector is not slowing down at all and once these borders open after our premiers have had their time we should have quite a good functioning economy.

We'll see a drop, but part of a cycle rather than calamity IMO. The real test will be if/when interest rates start to rise...

Andrew

 

Awesome I think you should find more articles like this .
Quality

 

Sensationalist click bait.

 

Thanks. As News Corp own 61.6 per cent stake in REA Group, I thought they were the official mouth piece of the property industry

 

13% of Australia jobs are directly related to construction and for every one million of missed investment, there are 7 jobs lost.

Just the construction can hold 13% of Australian Jobs. what is the % of jobs does the whole real estate industry holds?

So, if RBA, suspects, that will happen, they better goto a negative 5% interest rate. So, we can hold our properties.

 

So you selling up?

 

This is the RBA report referenced by the articles.

 

Thank you for the report.

 

Good discussion of this on the ABC Money podcast last week.
Essentially it is not a prediction but a model of “what if”

and what I’m hearing is ... the consequences are so big that the govt would do anything not to let it happen

 

It seems there are lots of scenarios around what could potentially happen... I've got to admit I thought we were in for more pain when we were in the midst of COVID lock-down in March but it appears capitalism is a resilient bugger and nobody that can influence the situation (e.g. governments) are going to stand by and let things burn e.g. September JobKeeper "cliff", etc x other cliffs

 

Can’t find the article but was the RBA not throwing around the idea of the housing market being shut down to avoid the perception of a crash should prices drop during coronavirus restrictions?

Definitely some concern but 40% would be absolutely worst case scenario. Government intervention and the deployment of negative interest rates may come into play if things get dire. Also as soon as corona passes I believe we will have some of our biggest immigration intakes of all time

 

There were reports in June that the RBA considered shutting the property market down.

https://www.abc.net.au/news/2020-06...ng-for-real-estate-transaction-pause/12363222

I'm not convinced that the government could prevent a crash. A number of markets fell hard in Europe and the US during the GFC, and I doubt that Australia's got significantly better controls or processes than these countries had, other than the benefit of learning from their mistakes.

Plus there isn't a lot of room for manoeuvre. Interest rates are close to zero and the economy is being massively subsidised at the moment.

 

There seems to be a large number of loan deferrals but does anyone have a source of data for this? What's the resolution of the data? Can you find out the proportion of deferrals in your state? city? postcode?

 

I'm sure YOU'RE the only only one saying there's a bubble.

 

Don't you have to own something to sell it?

 

Here is some info on loan deferrals

Banks Give $211bn in Loan Deferrals