Surging property values across the nation are being closely watched by Reserve Bank of Australia governor Philip Lowe but he says the coronavirus pandemic’s effects on the economy would have been more difficult to grapple with if home prices had fallen.
Dr Lowe told a standing committee on economics hearing on Friday morning that there are “many moving parts … at present” making the economic outlook complex. Home prices are rising across the majority of the country but Dr Lowe said the national housing price index has just reached the level it hit four years ago following a major property boom.
RBA governor Philip Lowe.Credit:Dominic Lorrimer
Record low interest rates, a shift in preference towards houses and regional areas, large incentives from the government for first-home buyers, slow population growth, a drop in Sydney and Melbourne rates and high rates of house building are all having an effect, he said.
“In the face of all these moving parts, the housing market has been more resilient than expected and this has been helpful in terms of the overall economy,” Dr Lowe said.
“The past year would have been even more complicated if there had been large and widespread falls in housing prices.”
Dr Lowe said the RBA does not “and should not” target housing prices but instead focused on the lending used to buy property.
“We want to see lending standards remain strong. At present, there are few signs of a deterioration in these standards. If that were to change, you could expect that we would be discussing possible responses at the Council of Financial Regulators, as we did a few years ago,” he said.
The bank this week announced it would create another $100 billion to buy federal and state government bonds while committing to holding the official cash rate at its current record low rate of 0.1 per cent to at least 2024.
Dr Lowe said the economy had performed better than expected, but added there would only be a gradual recovery of the jobs market and wages growth.
He said a key issue is how households respond to the end of government support programs such as JobKeeper and the COVID supplement.
“The fiscal response has supported people’s incomes, has boosted household savings, with the result that household balance sheets have strengthened noticeably,” he said.
“We are expecting these stronger balance sheets to support spending, but there are uncertainties in both directions here.”
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