Falling house prices may limit future RBA rate hikes
When house prices drop, people feel poorer and spend less, which eases inflation pressure on the RBA.
Australia is facing its biggest fall in household wealth on record, but it may have an unexpected benefit for mortgage holders. Falling property prices make people feel poorer and cut spending, which reduces inflation pressure.
AMP chief economist Shane Oliver says this 'wealth effect' does the RBA's job for it. Each 10 per cent fall in house prices cuts consumer spending by about 0.8 per cent after six months and about 1.6 per cent over a year.
National prices have dropped 2.7 per cent since March. Modelling predicts a more than 10.6 per cent national peak-to-trough fall, which would strip about 1.3 trillion dollars from household wealth.
- 2.7 per cent since March
- Current price decline
- More than 10.6 per cent
- Predicted peak-to-trough fall
- Approximately 1.3 trillion dollars
- Household wealth loss forecast
- Almost completely priced in by markets
- Rate hike probability September 29
Why it mattersIf falling prices slow inflation, the RBA may not need to raise rates as often, saving borrowers money on mortgages.
AustraliaAustralians with home loans face higher repayments if rates rise, but weakening prices mean fewer hikes may be needed to control inflation.
✓ Claims checked against the source. checked 1 h ago
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