AMP Capital’s chief economist, Shane Oliver, has written a detailed note explaining why he believes that “this time is different” for Australia’s housing market, and why “this downturn will likely be deeper and the recovery slower than in past cycles”. Dr Oliver believes three primary factors will conspire to drive a “15-20% top to bottom fall in home prices out to the second half of next year”, namely “higher home price to income levels; higher debt levels; and an end to the long-term decline in interest rates”. Regarding the first factor – higher home price to income levels – Oliver notes that “home price to income ratios are now very high, which will limit their upside, unlike 30 years ago”. However, “if the cash rate is raised to the 4% level the money market is assuming – this would more than double household interest payments and push total mortgage repayments to record highs relative to incomes & likely drive a 30% or so fall in prices”. So basically, the housing market’s destiny is in the hands of the RBA.

Source: Stuff September 02, 2022 03:18 UTC