The latest in-depth report into the Australia economy from the Organisation for Economic Co-operation and Development’s (OECD) says that the current pace of house price declines in Australia “would suggest a soft landing without substantial consequence for the overall economy”.
That’s not likely to be the headline you read when you read the coverage of the report in the mainstream press however, who instead chose to focus on the additional warning that “…some risk of a hard landing remains.”
The headlines are no doubt doing a good job at generating clicks and page views, but they come at a rough time from the ASX, which has now been falling heavily for three and a half months.
The OECD’s researchers went further in suggesting that “some evidence suggests that Australia’s house prices have not been hugely overvalued” (5 – 15% at the 2017 peak according to the IMF) and that “A direct hit to the financial sector from a wave of mortgage defaults is unlikely”.
The OECD applauded the efforts of Australian regulatory authorities and lenders themselves, stating that the “banks have become better capitalised and their liquidity position has improved”.
The report, which was released over the weekend, preceded today’s housing finance numbers, which sowed in seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 2.6%. This is good news for the banks and the wider housing market, and perhaps points more to a softer landing scenario for house prices.
The OECD wasn’t entirely positive however, and warned that “Australia faces economic challenges that, if not handled well, could see an end to its strong track record.”
Regardless, things may not be as bad as they seem in the Australian economy, with RBA Assistant Governor Kent stating at the weekend “We have said that it’s likely the next move is up. That doesn’t mean that if it’s needed that the next move might not be down but that’s not in our forecasts. I would emphasise a gradual fall in unemployment and a gradual rise in consumption.”