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MNI BRIEF: RBA Modelling Shows House Prices Could Fall 20%

MNI (Perth)

Reserve Bank of Australia modelling showed house prices could fall 20% if people react more negatively to higher interest rates, according to emails and documents disclosed through a Freedom of Information request.

The documents show the RBA expects house prices in Sydney and Melbourne to decline 1.5% a month over the the second half of the year, helping steer an 11% peak-to-trough fall by the end of 2023. A downside scenario that assumes that "people become pessimistic about the outlook for housing prices" due to falling prices or higher rates could deliver a decline of 20% by the end of 2024. The downgrade to wealth under a more pessimistic scenario would result in the level of consumption being 0.75% lower than the RBA's baseline, therefore a further drag on the economy.

The disclosures come as data from CoreLogic showed Sydney home values are down 10.1% since their peak in February. Melbourne home prices are down 6.4% from their January peak.

Robert covers RBA and RBNZ policy and the economy for MNI in Australia.
Robert covers RBA and RBNZ policy and the economy for MNI in Australia.

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