OPINION: Some economists fear the Reserve’s vigour against inflation will crush the housing market. But the central bank reckons they are wrong.
The Reserve Bank of Australia has slapped down the pessimists who are concerned that its super-sized interest rate rises will crush the housing market and the economy.
Nevertheless, Bullock delivered an extra nugget by foreshadowing that the current 1.35 per cent cash rate must go a “fair bit higher” to reach neutral, the estimated level at which monetary policy is neither stimulatory nor restrictive.RBA board meeting minutes were also hawkish on Tuesday, stating the cash rate was “well below” the lower range of estimates for the neutral rate.
Bullock says a 10 per cent national house price fall will put only 0.4 per cent of home borrowers in negative equity. A caveat other analysts point to is that the RBA’s average national house price scenario omits that outer suburbs will typically experience larger price falls. These areas have more marginal borrowers susceptible to job losses, loan defaults and mortgage stress.
”Almost three-quarters of debt outstanding is held by households in the top 40 per cent of the income distribution; indebted households in the bottom 20 per cent of the income distribution hold less than 5 per cent of the debt,” Bullock says.Advertisement
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