However, members observed that if the prices fell much further, consumption could weaken, which would result in lower GDP growth, higher unemployment and lower inflation.
The minutes show particular unease at the falls in the nation’s two largest property markets given the Reserve already has official interest rates at their lowest level since 1960.
Some analysts have predicted house prices of up to 30 per cent from the top of the market, suggesting bigger falls to come particularly in Sydney and Melbourne.
“Members noted that the cumulative falls in housing prices in Sydney and Melbourne were relatively large by historical standards, and that it was unusual for housing prices to fall significantly in an environment of low mortgage interest rates and a declining unemployment rate,” the minutes showed.
One factor identified by the Reserve Bank for falling prices is the sharp drop in foreign buyers.
The annual report of the Foreign Investment Review Board revealed a 58 per cent drop in investment from overseas buyers in the Australian property market last financial year.
The $13 billion in foreign activity was the lowest since 2009-10. The 58 per cent drop last year followed a 59 per cent fall in 2016-17.
By state, foreign activity in NSW dropped by a third to $4 billion last financial year and by 53 per cent to $5 billion in Victoria.
Three-quarters of the drop was due to falls in new dwelling approvals.
UBS economist George Tharenou said the collapse in foreign investment was one of seven factors buffeting the national property market.
“With an easing of policy towards foreigners not expected, the outlook for housing is still getting worse,” he said.
UBS senior economist George Tharenou says the sharp fall in foreign buyers is contributing to the drop in house prices with further declines to come.Credit:Brook Mitchell
“We expect dwelling investment to fall sharply, with house prices to double the fall so far, and drop a record 14 per cent peak-to-trough. This will see a negative household wealth effect, causing consumption to moderate, GDP to ease below trend and unemployment tick up.”
The drop in property prices and the sharp fall in building approvals is filtering through to the banking sector.
ANZ chief executive officer Shayne Elliott admitted his bank may have been “overly conservative” in making loans to owner-occupiers, adding it was also trying to boost investor interest.
“Consumer sentiment has remained generally subdued with uncertainty around regulation and house prices impacting confidence,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
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