Speakers: Jenny Wilkinson

Transcript

Jenny Wilkinson

Housing higher interest rates, heightened global uncertainty, and weak consumer sentiment have contributed to a significant decline in established house prices, with the tax reforms announced in the 26-7 budget also having some effect. The softening has been most pronounced in the wealthier suburbs of Sydney and Melbourne, but is now evident across the country. Nationally, dwelling prices have declined by 5.2% from their March peak, but remain almost 6% higher than their levels of a couple of years ago. The price declines have been sharper than in the early stages of most other housing slowdowns over the past 20 years, but the run-up in house prices was also more significant. Consistent with this, the major banks have revised down their dwelling price forecasts materially over recent months. It is important to distinguish the cyclical and structural drivers of the housing market. Interest rates have a particularly strong cyclical effect because Australia's high share of variable rate mortgages means monetary policy passes relatively quickly to existing and new borrowers. The budget tax reforms are expected to have a more structural effect through their impact on the relative attractiveness of housing to investors.