When asked about low house ownership rates among young people, Australia’s most prominent banker shifted uncomfortably in his chair and said, “Getting them into the market is not my day job.”
Reserve Bank of Australia Governor Philip Lowe stretched his arms when asked about millennials by Liberal MP Keith Wolahan.
In the past 50 years, the proportion of Australians aged 30 to 34 who owned a property fell from 64% to 50%, according to a 2021 Census research.
In Australia’s main cities, home values have soared to ridiculously unaffordable levels, far outpacing wage growth.
Dr Lowe told a Canberra parliamentary panel on Friday that getting more young Australians into the housing market will be ‘very tough’
Younger Australians need lower house prices compared to income, and house prices must grow more slowly than income for ‘a time,’ the banker said.
Video below.
When challenged about low home ownership rates among young people, Australia’s most prominent banker squirmed uncomfortably in his chair and said, “Not my day job.” Reserve Bank of Australia Governor Philip Lowe stretched his arms when questioned about millennials.
Dr. Lowe was concerned about Australians who wouldn’t inherit property or benefit from the ‘Bank of Mum and Dad’
1982, 1990, 2022
Baby boomers remind out they paid 17% interest in early 1990 compared to 0.1% in May before rates jumped five times in 2022 to 2.35 %.
Debt-to-income ratios were substantially lower in the 1980s when inflation was higher.
Sydney’s typical property price was $79,425 whereas Australia’s average full-time earnings was $17,238.
Debt-to-income ratio was 3.7 with 20% down.
Sydney’s median house price was $194,000 and the average full-time salary was $28,168.
Debt-to-income ratio was 5.5 with 20% down.
Sydney’s August median property price was $1,302,635 and average full-time earnings was $92,030.
Debt-to-income ratio was 11.3 with 20% down.
A debt-to-income ratio of six or greater is considered dangerous by the Australian Prudential Regulation Authority.
Australia’s August median home price was $738,321.
Someone with a 20% deposit could borrow $590,657.
A full-time worker earning $92,030 would have a debt-to-income ratio of 6.4 buying a mid-priced Australian home.
Macquarie Univ., CoreLogic
‘Many Australians can’t,’ he said.
As an Australian, not a central bank governor, I worry that the housing market is reinforcing and worsening wealth inequality.
Dr. Lowe stated he wasn’t paid to get young people into homes.
Inability to solve zoning, taxation, and transport has bad repercussions on society, he said.
Dr. Lowe, 60, owns a $4million property in Sydney’s south-east.
Like other baby boomers, he’s lucky to have been able to afford a property when capital city homes were cheaper in the 1980s.
In Sydney, where the median property price is $1.3million, a full-time worker earning $92,000 with a 20% mortgage deposit would owe $1.042million, 11 times their salary.
A debt-to-income ratio of six or greater is dangerous, according to the Australian Prudential Regulation Authority.
To buy a typical Sydney home without mortgage stress, you’d need $173,685 a year.
Before the slump, Sydney’s median house price jumped 29.6% while salaries increased 2.3%.
Dr. Lowe criticized tax policy, zoning rules, and transport infrastructure for Australia’s overpriced housing.
‘It’s urban design, the type of houses we build, maybe the tax arrangements, the transit system, because we’ve underinvested in transport,’ he said.
Even a median-priced Australian home is out of reach for a full-time worker (pictured are young women at Randwick Racecourse in Sydney)
Transport increases the availability of well-located land.
If you increase the quantity of well-located land, the value of land in a home will fall.
The central bank chief said dropping housing prices due to interest rate hikes won’t make property more affordable for young people.
‘We boost interest rates for a period and home prices fall down, making it more affordable, but it’s not a sustainable answer,’ Dr. Lowe added.
Dr. Lowe blamed exorbitant house prices on the high cost of land, especially along the coast, when queried about housing affordability by Sydney MP Allegra Spender.
High land prices cause high house prices, he claimed.
But Australians paying higher property costs isn’t the Reserve Bank’s fault; it’s our choices as a nation.
Dr. Lowe acknowledges he was wrong about interest rates not rising until 2024.
Dr. Lowe also admitted he was wrong about interest rates not rising until 2024 and hinted at a 10% drop in housing prices.
Philip Lowe, governor of the Reserve Bank, said he was wrong about interest rates.
The economist in charge of monetary policy promised the cash rate will remain at 0.1% until 2021.
Dr. Lowe told the House of Representatives Economics Committee in Canberra it was a mistake to create ‘conditional’ and ‘explicit’ interest rate estimates for 2020 and 2021 before Russia’s Ukraine incursion pushed up crude oil prices.
He remarked Friday morning, ‘Some people think it was a mistake, and it may have been.’
Since May, borrowers have faced five consecutive monthly interest rate increases, the most severe since 1994.
The cash rate is at a seven-year high of 2.35 percent, and Dr. Lowe hinted at future rate hikes on Friday. Inflation is expected to approach a 32-year high in 2022.
Dr. Lowe said that while he didn’t make real estate forecasts, a 10% collapse following a 25% rise during the pandemic would still equal a 15% net gain.
‘I wouldn’t be surprised if prices dropped 10%,’ he said.
Even if they achieved that, they’re up 15% over three years, so it’s hard to say.
As interest rates rise, I expect the housing market to cool and prices to fall.
People complained about rising housing prices when prices rose 25% in two years.
Sydney’s median house price is $1.3million despite a 7.3% drop since January.
Melbourne’s median house price is $948,879, down 5.1% since 2022.
Dr. Lowe suggests that a 10% fall following a 25% spike during the epidemic would still equal a 15% net gain (pictured is a Melbourne house)
Brisbane’s median house price rose 5.9% to $864,149 since 2022.
August house prices fell in most capital cities.
SYDNEY: 1.302.635, down 2.6%
MELBOURNE: $948,879, down 1.5%
Brisbane: -2.1% to $864,149
Adelaide: -0.2% to $707,364
Down 0.2% to $588,308
HOBART: $772,443 (-1.7%)
Darwin: +1.1% to $592,183
CANBERRA: $1,033,377, down 2%
August CoreLogic house price data
In August, house prices declined in every capital city except Darwin. Sydney and Melbourne’s declines began before the RBA raised rates in May for the first time since November 2010.
CoreLogic data shows a 1.6% fall in national home and unit prices in August, the largest monthly decline since January 1983.
Last month’s median home price was $738,321.
Even with a 20% deposit, a full-time worker earning $92,000 couldn’t afford a $590,657 mortgage.
ANZ now believes interest rates could keep climbing in 2023 after forecasting a 10-year high in December.
Dr. Lowe stated he wouldn’t give a date when predicting interest rates in the future, even if he was talking about a ‘unique moment in history’
He stated, ‘Our wording concerning timing will be vaguer’
I still think it was the correct thing to do at the time, but we won’t do it again.
I don’t think it will become routine.
The Reserve Bank made ‘explicit’ forecasts during the outbreak.
He said, “That’s different.”
We made explicit, caveated timing statements.
Dr Lowe said it was a mistake to make ‘conditional’ remarks on interest rates last year, before Russia’s Ukraine invasion pushed up crude oil prices.
He insisted his words were economic observations, not promises.
‘People understood our prior messages as a pledge that interest rates wouldn’t rise until 2024,’ he said.
Philip Lowe’s rate pledges
October 2021: “It won’t raise the cash rate until inflation is within the 2-3% target range.”
The economy will not meet this criteria before 2024, according to the core forecast.
August 2021: “The board won’t raise the cash rate until actual inflation is 2 to 3 percent.”
The economy will not meet this criteria before 2024, according to the core forecast.
JUNE 2021: “It won’t raise the cash rate until inflation is sustainably between 2% and 3%.”
‘For this to happen, the labor market must be tight enough to create higher-than-current wage growth.
‘Not before 2024’
Our interest rate statements were always dependent on the economy.
This conditionality was often lost in communications, so we’re rethinking our approach to forward direction and communication.
Inflation fell below the Reserve Bank’s 2-3% target for most of last year, but it jumped to 3.8% in the June quarter of 2021.
Treasurer Jim Chalmers started a review of the Reserve Bank’s monetary policy actions in July.
The RBA and Treasury predict inflation to approach a 32-year high of 7.75% in 2022.
Dr. Lowe predicted inflation could linger above the 2% to 3% target for two years, keeping interest rates high.
Prolonged high inflation risked causing another recession, which happened in 2020 at the pandemic’s start for the first time since 1991.
He said, ‘The longer it stays above 3%, the harder it will be.’
If that happens, interest rates would rise and the economy will contract.
Dr. Lowe said the RBA was considering raising the cash rate by 25 or 50 basis points in October, or 0.25 or 0.5 percentage points.
ANZ released a new economic note Friday anticipating a 50 basis point rate rise in October and more in 2023. The bank had previously predicted the cash rate would peak in 2022 during this monetary policy tightening cycle.
The bank predicted tightening might last until 2023.
We anticipate any extension until 2023 will come after a pause of some months as the RBA tries to measure inflation pressures following 325 basis points of rate hikes.
ANZ expects the cash rate to approach 3.35 percent by December, marking 3.25 percentage points of rate increases since the record-low 0.1% cash rate expired in May.