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House price slowdown ‘a good outcome’: RBA

Reserve Bank boss Philip Lowe says a sustained cooling in major housing markets would be a welcome development now that overheated property prices have started to ease.

House prices are no longer rising in Sydney and the Melbourne market has cooled thanks to clampdowns on investor lending, lower foreign demand and improved supply, Dr Lowe told a federal government economics committee hearing in Sydney on Friday.

There’s also the weight of gravity, he said.

“Prices get so high and people find it very difficult to afford them – that’s happened in Sydney and that reduces demand,” he said.

The central bank chief said while the RBA did not target household prices or household debt with its monetary measures, a continuation of the property slowdown would be welcome.

“It would be a good outcome if we now experienced a run of years in which the rate of growth of housing costs and debt did not outstrip growth in our incomes in the way that they did over the past five years,” he said.

Dr Lowe reiterated the bank’s view that if interest rates were to move, it would more likely be up than down.

But a rise in the near term isn’t foreshadowed.

A pick up in wages in Australia is also expected but only gradually as the labour market tightens.

In somewhat an upbeat statement, Dr Lowe said business conditions have lifted – buoyed partly by the large number of infrastructure projects underway and the growth in jobs that comes with it.

“It would be an exaggeration to say that animal spirits have fully returned but the mood has certainly brightened in much of the business community,” he said.

“The thing that would make me feel a lot better is a pick up in wages growth.”

Dr Lowe predicts the Australian economy to grow by a bit above three per cent – faster than the bank’s current estimate over this year and next.

That outlook hasn’t been affected by the recent volatility in the equity market, he said.

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