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As home values enter freefall, the RBA is doubling down on higher rates, setting the stage for what could be the worst property crash in the nation’s history.
While the housing market tanks, the Reserve Bank of Australia could not give a rat’s bum about the first-order consequences. Home values across the five largest capitals have fallen 3.9 per cent over the past three months, equivalent to a 15 per cent annualised decline.
Sydney is worse, losing 4.6 per cent in a quarter, or 17 per cent annualised. Melbourne is shrinking at a 13.5 per cent annual pace. Even the erstwhile boom markets of Perth, Brisbane and Adelaide, which still show positive year-on-year gains, are now falling at double-digit annualised rates.
The dream of home ownership is getting even more distant for many young Australians. (ABC News: John Gunn)
A rate rise is estimated to cause an immediate 5 per cent reduction in home purchases.
Economic modelling suggests the home ownership rate would fall by 0.3 of a percentage point and take more than a decade to recover.
Markets and economists are almost certain the RBA will announce a rate rise on Tuesday.
Each standard interest rate increase could be locking close to 30,000 households out of home ownership, some of them for more than a decade, research suggests.
The modelling was conducted by James Graham, a senior lecturer in economics at the University of Sydney, along with Avish Sharma, a PhD candidate at Northwestern University who is a former analyst at the Reserve Bank of Australia.
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Houses are overvalued by 38 per cent across Australia’s capital cities, new analysis reveals, suggesting prices could have further to fall in the market downturn.
The data, from AMP chief economist Shane Oliver, indicates median house prices in every capital city are overvalued by at least a quarter, when compared to average rents – adjusted for inflation – over the past 40 years.
Sydney houses are overvalued by 41 per cent and Melbourne 24 per cent. But Brisbane – where house values increased by 10.3 per cent in just the year to the end of August, according to Cotality – is the most overvalued capital, at 61 per cent. Perth houses are 28 per cent overvalued.
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