RBA expects COVID property price surge will end but no recession
The head of the Reserve Bank of Australia has predicted the surge in property prices will come to an end, but does not expect the latest wave of COVID lockdowns will push the economy into another recession.
RBA governor Philip Lowe has made it clear the central bank’s board still plans to keep the cash rate on hold until 2024, while acknowledging record-low interest rates are pushing up housing prices.
National housing prices are expected to jump by as much as 20% this year, although Mr Lowe and economists expect factors such as affordability constraints will start to slow the pace of growth.
Mr Lowe on Friday predicted the price boom still had a bit further to go.
“While I hesitate to provide forecasts for the housing market, I think it’s quite likely we’ll see further increases in the next little while,” he told a federal parliamentary committee hearing.
“It’s a global story. It’s not just in Brisbane or Sydney or Melbourne where prices are rising, it’s almost in every city around the world, and it’s largely because interest rates are low and they’re likely to stay low.”
Mr Lowe said low interest rates continue to push prices up, but noted there were now factors at play that could start working in the other direction.
“We’re building a lot of dwellings and the population is not growing as quickly, and every day the prices go up it’s harder for people to afford.
“Ultimately there’s some point at which these things will start equilibrating and the big price rises come to an end, but I’m afraid I can’t forecast when that actually happens.”
The RBA board kept the cash rate on hold at a record low 0.1% after its monthly meeting on Tuesday.
Mr Lowe on Friday repeated the RBA board will not increase the cash rate until inflation is sustainably within its 2-3% target range and it does not expect that condition to be met before 2024.
“It will not be enough for inflation to just sneak across the 2% line for a quarter or two,” he said.
“We want to see inflation well within the target band and be confident that it will stay there.”