Reserve Bank revises up its house price forecast

The Reserve Bank has revised up its forecast track for house prices over the next three years, saying prices might actually rise a bit more later this year because of a shortage of listings. However, it said its September quarter Monetary Policy Statement that any recovery was likely to be short lived because household debt levels remained high. The Reserve Bank forecast in its June Monetary Policy Statement that house prices would fall 15.4% between the peak in late 2007 and a trough next year, but it revised that track to a fall of 11-12% from peak to trough in its September quarter statement. The Reserve Bank had forecast a 21% fall in house prices in its forecasts late last year.

The Reserve Bank noted that housing turnover had risen notably in recent months. "In addition, house prices have begun to increase, mainly due to unusually low numbers of houses being offered for sale," it said. "Surveys of consumer and business confidence have shown improvement in light of these developments," the Reserve Bank said. "Finally, while there is evidence to suggest household spending will increase over the next few quarters, there are also numerous reasons to question the longevity of any increase in spending," it said. "Labour income growth is likely to be weak for some time, with employment forecast to fall further and wage growth likely to ease," it said. "What is more, consumers are already very indebted, with household credit at almost 160% of disposable income. Given this, we continue to believe that house price rises will prove short-lived." Click here to watch this video.