OECD warns of economic downturn tipped by housing prices

Jodie Humphries 3 March 2017 NEWS

OECD Australian economyDespite solid economic policies, Australian housing affordability issues could push the economy to the edge of recession.

The Organisation for Economic Co-operation and Development (OECD) released its 2017 OECD Economic Survey of Australia today, with the report having a strong emphasis on the housing market's effect on the overall economy.

The results showed that one of Australia’s key vulnerabilities is any dramatic house price correction as this could cause lower household consumption and cause a rise in mortgage defaults.

“A continued rise of the market, fuelled by both investor and owner-occupier demand, may end in a significant downward correction that spreads to the rest of the economy,” the report said.

There were also signs of the housing market cooling, with recent data showing price growth has eased in most urban areas, which reflects substantial supply response. However, the overall pricing and price-to-income ratio increases remain throughout the country.

House prices and household debt have reached unprecedented highs, in part because policy rate cuts have lowered debt servicing costs (most housing loans are set at variable interest rates),” the OECD report says.

Overall, the Australian economy was found to be on par or above other OECD countries, but the state of the housing market and its effect on the overall economy was still a concern.

“Eventually, rates will need to be normalised, but the timing and pace will depend on developments in growth, employment, inflation, and the housing market.”

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