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MNI BRIEF: RBA Says Expensive Home Prices To Fall Most

MNI (PERTH)
MNI (Perth)

RBA's Kearns says modelling showing house price declines are not a predeiction.

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The Reserve Bank of Australia’s head of Domestic Markets, Jonathan Kearns, said houses in expensive suburbs are the most sensitive to interest rate changes, adding that apartments are less likely to suffer price swings than houses. He attempted to downplay modelling contained in the Bank’s April Financial Stability Review that showed a 15% decline in house prices based on a 200 bps increase in rates, saying “it was not actually a prediction” but rather an estimate of the sensitivity of house prices to interest rates.

However, Kearns said its user-cost model showed that if interest rates were 200 bps higher “forever” then house prices would end up being 30% lower than if interest rates had not changed. However, if interest rate reverted to their initial levels after two years, then the interest rate impact would unwind. Governor Philip Lowe last week said he would not be surprised if home prices fell a “cumulative” 10%.

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The Reserve Bank of Australia’s head of Domestic Markets, Jonathan Kearns, said houses in expensive suburbs are the most sensitive to interest rate changes, adding that apartments are less likely to suffer price swings than houses. He attempted to downplay modelling contained in the Bank’s April Financial Stability Review that showed a 15% decline in house prices based on a 200 bps increase in rates, saying “it was not actually a prediction” but rather an estimate of the sensitivity of house prices to interest rates.

However, Kearns said its user-cost model showed that if interest rates were 200 bps higher “forever” then house prices would end up being 30% lower than if interest rates had not changed. However, if interest rate reverted to their initial levels after two years, then the interest rate impact would unwind. Governor Philip Lowe last week said he would not be surprised if home prices fell a “cumulative” 10%.

Keep reading...Show less