Australias housing market is in far better shape than many abroad with falling mortgage rates boosting affordability and likely lifting home building later this year, a top central banker said on Thursday. The head of the Reserve Bank of Australias (RBA) economics arm, Anthony Richards, also said households had not become as over-extended as those in the United States or UK.
Leaving them less financially vulnerable in this downturn. And he saw little risk the current low level of interest rates would ultimately lead to the sort of explosion in bad loans that so plagues banking systems in other rich nations. "Recent significant falls in the cash rate are having positive effects on the economy and the household sector, and have contributed to a significant improvement in household cash flows and in measures of housing affordability," Richards told a housing conference.
Since September, the RBA has cut its key cash rate by 400 basis points to a record low of 3.25 percent. And, unlike many other developed nations, the banking system has been healthy enough to pass that easing on, bringing variable mortgage rates down by 375 basis points. This reduced the debt service burden of the whole household sector by about 5 percentage points of disposable income. "That implies a significant amount of cash flow relief, for spending on other goods and services or to save and/or pay down debt, said Richards.
It also helped make homes much more affordable, even though median home prices had fallen by only a relatively modest 3 percent last year, well below the double-digit losses seen in the US and UK. Indeed, Richards said early indications were that auction clearance rates in Sydney and Melbourne had shown a significant pick up so far this year, likely supporting prices.
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