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THE LATEST FROM THE KOUK

The risks of falling house prices

Fri, 24 Oct 2014

This article appeared in the October edition of The Adelaide Review at this link. It is reproduced in full below.

http://adelaidereview.com.au/commentary/article/the-risks-of-falling-house-prices 

The risks of falling house prices

House prices in Australia are high. Having risen by around 9.5 percent over the past year, the Reserve Bank of Australia is giving consideration to implementing radical policies that would not only slow this house price growth but would risk seeing absolute falls in prices.
Before the RBA and the anti-house price growth clique get too excited about the prospect of a policy suite that stops house prices rising or engineers a house price fall, it is worth thinking about the consequences for the macro economy from both strong house prices and the alternative – price weakness.

Inflation is slowly deflating and the RBA should be worried

Wed, 22 Oct 2014

Australia's inflation rate is heading lower. What is interesting is the deceleration in inflation is starting from a position where inflation was within the RBA's target band of 2 to 3 per cent.

In the September quarter, the CPI rose by 0.5 per cent, to be up 2.3 per cent for the year. Taking out the large prices swings and using the RBA underlying measures, inflation was 0.5 per cent for the quarter for an annual rise of just 2.5 per cent. In the first half of 2014, headline inflation was near 3 per cent with underlying inflation around 2.75 per cent.

Inflation is well contained, which ever way you cut it. Indeed, it looks like the quarterly momentum on prices is slowing which will filter into the year on year inflation run rate over the next few quarters. If, for example, underlying inflation is 0.6 per cent in the December quarter, annual underlying inflation, all of a sudden, is down at 2.25 per cent.