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Sharp Fall in House Prices 'Very Remote'

Friday, May 31, 2013

Subsequent to dwelling values having gained a solid 2.8% over the first three months of 2013 according to RP Data's capital city dwelling index, the month of May indicates a softening in values. RP Data national research director Tim Lawless confirmed it is likely to be down nearly 1% for the month.   Business Spectator economist Stephen Koukoulas from consultancy Market Economics, believes that the ‘possibility of a sharp fall in house prices is very remote’, saying that protective factors that will prevent this happening are 'weakness in new housing construction, strong population growth, and the ability for the RBA  to cut the cash rate even further'.

In February, he had predicted house prices to rise 10% over 2013 as part of an 'upward trend' after dwelling values rose 1.2% in January according to the RP Data-Rismark index. 

Koukoulas said if the price decline gathered momentum, the cash rate could fall to around 2% or even 1% in a 'worse case scenario'.  He believes that while it’s not clear what is behind the recent house price dip, he points to the recent fall in consumer sentiment and an 'updrift' in the unemployment rate as to possible factors.

However, he draws a clear distinction between Australia and the house price collapses in the US, the UK, Ireland, and Spain, and says the Australian housing market is 'fundamentally different' because the house price bubbles in these countries were accompanied by a housing construction boom, while housing construction in Australia is slow. 'Perversely, perhaps, this weakness in new housing construction is good news for now as it means there is little risk of a glut of property coming on to the market should there be a more worrying house price fall in the months ahead,' he adds.

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