More than $150 billion has been wiped off the value of Australian homes over the last six months, while the Reserve Bank has all but confirmed further cuts to interest rates.
The official Australian house price figures, released by the ABS on Tuesday, show Sydney and Melbourne driving the slump, with Melbourne recording its first quarterly price fall in seven years.
While Sydney recorded its third consecutive quarter of house price falls and first full year decline since the March quarter 2012. Nationally, house prices declined across all capital cities in the March quarter.
The ABS quarterly figures were released the same day as the Reserve Bankās minutes, which were hotly-awaited after this monthās rate cut.
RBA members noted that sluggish building approvals ā falling more than 20 per cent over the last year, and declining further in April ā meant that even a marked turnaround in sentiment would take some time to translate into higher residential construction activity.
Although the pace of price falls in Sydney and Melbourne had eased from earlier in the year, the Reserve Bank said that Perthās housing market had ādeclined markedlyā.
āMembers noted that the housing market was likely to be affected by the removal of uncertainty around possible changes to taxation arrangements relating to housing.
āThey also considered APRAās proposal to amend its requirement to banks to determine the borrowing capacity of loan applicants using a specified minimum interest rate.ā
While improving clearance rates suggest that house price declines are stabilising, the Reserve Bank said that it was ātoo earlyā to determine the overall effects of increasing clearance rates.
Related: Home Mortgage Arrears Rising, RBA says
The members all but said outright that there would be further cuts, noting that the outlook was based on the ātechnical assumptionā that interest rates āwould be lower in the period aheadā.
āMembers agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead.ā
Members retained its focus on the unemployment rate, signalling that developments in the labour market would be āparticularly importantā when deciding whether further monetary easing was appropriate.
āA lower level of interest rates would support growth in the economy, thereby reducing unemployment and contributing to inflation rising to a level consistent with the target.ā
Meanwhile, the RBAās head of financial stability Jonathan Kearns said that a rise in mortgage arrears do not pose a threat to financial stability.
Speaking at a property industry summit Kearns said that tighter lending standards have made it more difficult for some borrowers to refinance their loans.
Kearns said that reports banks have allowed loans to stay in arrears for longer may be in response to āpast poor lending decisionsā, although he said it was unlikely that it would explain a significant part of the increase in arrears.
āIn an environment of falling house prices, allowing a borrower to remain in arrears for longer would increase the loss that the borrower, and so the lender, is exposed to.
āThis wouldn't seem to be operating in the best interests of the borrower, or for that matter even the lender.ā