The housing downturn in Australia is intensifying and more and more economists are expecting a rate cut by the Reserve Bank of Australia, according to a report by Business Insider Australia.
"Real estate prices have fallen more than in any month in December since the start of the current slowdown and the decline in our sales / sales ratio," said Marcel Thieliant and Ben Udy, economists at Capital Economics. publication. "This suggests that prices will continue to fall at a similar pace in the first half of this year."
Capital Economics predicts that home prices in the capital will fall by 15% from their previous cyclical lows, marking the longest and deepest slowdown ever recorded.
According to the data, Capital Economics is convinced that the central bank will lower its cash rate.
"We think that 2019 will be the year when the previous excesses of the Australian real estate market will catch up with the economy," said Thieliant and Udy. "We believe that the worsening of the slowdown in the housing recession will weigh much more heavily on Australian GDP growth than most expect. Rather than raising interest rates as most people expect, we think the Reserve Bank of Australia will have to react by lowering its interest rates later this year. "
Capital Economics has forecast not one but two rate cuts of 25 basis points over the next 18 months, one in the second half of this year and the other in the first half of 2020.
The research firm also said that falling house prices would put downward pressure on the economy despite the strength of foreign trade and government demand.
"Investment in housing has held up so far because of the large number of unfinished projects, but the drop in building permits suggests that it will soon begin to weaken. And households could start reducing their consumption because of declining real estate wealth, "said Thieliant and Udy.
Net exports and public investment will remain supportive, but slower growth in consumption is likely to hinder growth in business investment, they said.
The RBA has already indicated that it is reluctant to lower interest rates further and would prefer to keep its key rates stable in the hope that more robust market conditions will boost GDP and wage growth, as well as inflation towards the middle of its 2 Objective of -3%.
According to Thieliant and Udy, this position will probably have to change.
"The experience of housing recessions in other advanced economies shows that central banks almost always end up lowering policy rates," they said.
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