Approvals to build new houses has reached a five-year low end of last year due to sliding house prices and an intensified credit clench. This has been a blow to now of the strongest sectors in Australia’s economy. The Reserve bank of Australia is under immense pressure to cut its interest rates. However, due to the lower dollar rates along with the scandal-ridden banking system in Australia looks grim to the housing market. The Australian Prime minister has cautioned banks against going too far with regulations which may choke off the country’s economic growth.
Housing market at its lowest since 2013
Future markets indicate a 505 chance of Reserve Bank of Australia bringing 1.5% cuts in the cash rate. The data from the Australia Bureau of Statistics indicate that approvals to build new homes have plunged by 23% by the end of 2018 and its lowest since 2013.
Possibility of 15% fall in housing prices
Economist says that the decline in the housing sector could possibly impact the GDP growth of Australia. There are forecasts that there could be steeper price falls which would eventually lead to a major slowdown in the economy. Capital economics forecasted that there could be a 15% fall in housing prices in 2019. Despite Australia’s booming external trade the housing crisis is set to pressure the economy.
There is a large pipeline of unfinished residential building projects. This would lead to lesser consumption from consumers. Other advanced communities, when faced with a similar situation, have had their central banks cutting policy rates. However, Reserve Bank of Australia.s reluctance to do so presents a counter-argument that stabilizing policy rates will ensure firmer labour market.
Reserve Bank of Australia further adds on that, “Macro prudential lending restrictions have already cooled down both supply and demand for housing credit, resulting in correction in the housing market despite relative stability in the mortgage rate.’
