Housing recovery offsets other risks: RBA

The Reserve Bank expects housing investment to return to growth sooner than previously thought, thanks to stabilising property prices and the combination of interest rate cuts and tax offsets.

The central bank on Friday said the projected trough in dwelling investment should now arrive in late 2020 – about half a year earlier than it previously anticipated – amid earlier-than-expected signs of a turnaround in established housing market conditions.

The value of dwelling investment in Australia is still expected to drag for several quarters, with disappointing building approvals data over recent months prompting the RBA to soften its near-term outlook in its quarterly Statement on Monetary Policy.

In the medium term, however, the RBA said there are a number of upside risks contributing to a more balanced outlook.

These include lower interest rates and recent federal government tax cuts, both of which raise the possibility consumption and dwelling investment will contribute more to growth towards the end of the RBA’s forecast period than previously expected.

“The signs of stabilisation in the housing market reduce one possible source of downside risk to consumption growth and could provide some upside risk towards the end of the forecast horizon,” the RBA said in its statement.

Friday’s quarterly statement confirmed the RBA’s revised forecast on GDP for 2019, from 2.75 per cent to 2.5 per cent, as well as a more subdued outlook on inflation through 2020.

The RBA said a stubbornly high unemployment rate remains the key domestic risk to Australia’s economy, tipping wages and inflation to stay lower for longer as a result.

Leading indicators such as job vacancies and firms’ hiring intentions hinted the nation’s unemployment rate will remain at 5.2 per cent “for some time”, the RBA said.

This means labour market slack will be higher than previously forecast over the next few years.

“Uncertainty is clouding how much any increase in labour demand will be met by unemployed workers finding jobs, existing employees working more hours or a further increase in the participation rate,” the RBA said.

But it noted dual cuts in the cash rate and the federal government’s tax offsets should help stimulate household consumption over the medium term, while the property market turnaround will also play a role.

Corelogic housing data for July showed a consistent trend towards smaller month-on-month declines.

Prices across the state capitals rose by a combined 0.1 per cent in July, breaking almost two years of losses, including a monthly increase of 0.2 per cent in Sydney, Melbourne and Brisbane, and an easing decline in Adelaide, Perth and Canberra.


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