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Housing market “stupidity” to be brought back to Earth


underwater house1A financial firm has predicted a slowdown for the housing market and stable interest rates for the near future.

A Deloitte Access Economics report has predicted that housing construction will continue to contract in the year ahead, The Australian has reported.

“The pace of home building is set to shrink further amid increasing evidence that gravity may soon start to catch up with stupidity in the housing markets,” Deloitte Access Economics partner Chris Richardson said.

The prediction mirrors forecasts from the Housing Industry Association, which has tipped home building to fall over the next two years.

In spite of the pullback in the property market, Deloitte predicted the Reserve Bank would remain reticent to move on the official cash rate well into next year, The Australian reported. Richardson said high levels of household debt would be likely to stay the RBA’s hand.

“Australia’s heavily indebted families are now the Reserve Bank’s problem, which is why, although interest rates will indeed rise in the next few years, they won’t rise sharply,” Richardson said.

A similar warning was issued in June by San Francisco Federal Reserve Bank president John Williams, who warned that high levels of household debt in Australia could mean severe economic shocks should the official cash rate rise.

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