RBA surprised by housing weakness

by Adam Smith15 May 2012

The RBA has expressed its shock at the low level of home building over the last year.

In a speech to the ADC Future Summit in Melbourne, Reserve Bank deputy governor Philip Lowe said the Bank has expected stronger growth in consumer demand. While he said aggregate demand grew as anticipated, Lowe pointed out the most of this was driven by the mining sector.

"On the other hand, growth in demand not directly related to mining investment was not as strong as was forecast," he said.

In particular, Lowe expressed surprise at the level of weakness in the housing sector.

"The biggest surprise was probably in terms of home building. We had expected dwelling approvals to pick up gradually over 2011, but this pick-up did not eventuate," he said.

Lowe said a possible explanation of the weak demand was the increasing tendency of consumers to raise their level of savings while deleveraging debt.

"This change in behaviour is having ripple effects through the economy, including through a lowering of expected capital gains on housing. This has made developers, financiers and households less willing to commit to new construction despite rising rental yields, lower prices relative to income and ongoing growth in population," he said.

While Lowe predicted that "improving fundamentals" would eventually see a pick-up in home building, he said forward indicators "do not suggest that this is imminent".

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  • by Forgotten Australian Family 15/05/2012 9:02:22 AM

    Since 2008 I have been trying, on a disability pension and what little I inherited from my mother, to build my disabled child a granny flat. There is not one government grant, not even the one there used to be ten years ago, by which my ex-partner obtained a rural home. We are not eligible for the State Govt construction boost, even if I sell the property to my child for a small amount, as there is a rule against doing this. Why does anyone in government expect people to build accommodation when everything is stacked against us? I've spent four years searching for assistance, I know there isn't any.

  • by Ross 15/05/2012 9:04:07 AM

    Is the RBA for real? The housing market has been in serious trouble for the last 2 years with most of the decline attributed to high interest rates which the RBA has a large stake holding in.
    For the deputy governor, Philip Lowe, to express complete surprise a this growing disaster is absolutely astounding and displays for all to see the ineptitude of this organization. The 'ambulance at the bottom of the cliff ' attitude shows quite clearly that the RBA has no relevance in Australia's financial well being.

  • by simon kranky 15/05/2012 9:10:08 AM

    SURPRISED?!! hang on a moment. First we had the US debt crisis fueled by poor lending on mortgages. Now we have an ongoing crisis with whole European economies sliding into the abyss. Shares ( some of the them losing more than 50% ) are currently slipping better than a fairgrounds slide and its a 'SURPRISE' to the RBA that people are hanging onto their money and decreasing their debt levels?!!.. Anybody want to buy a new unit in Canberra at the moment?? yeh right!!!