By Matthew Cranston 7 Dec 2018 Australian Financial Review
Dr Debelle told economists at the annual Australian Business Economists dinner on Thursday night that the situation of falling house prices was “absolutely something we are paying attention to” both from the lending perspective and with a view to the impact on the economy.
“From what I can tell what we haven’t seen anywhere in the world is a decent fall in house prices in two capital cities at the same time unemployment is going down and the economy is growing at a reasonable pace. This is uncharted territory,” Dr Debelle said.
“This is not a situation we have seen before – it is uncharted territory,” he repeated.
Sydney house prices are down 8.1 per cent in the last 12 months, Melbourne is down 6 per cent.
“Credit is still flowing but at a much slower rate and it’s something we are watching – but that is as much a function of banks willingness to lend and not so much the price.”
Credit among owner occupiers is still growing at about 5 per cent according to the latest figures while lending growth to investors is flat.
Westpac chief economist Bill Evans asked where Dr Debelle saw this house price cycle ending up given the last house price downturns all ended up with interest rate cuts.
“I don’t know Bill,” was the simple response.
Outside of house prices Dr Debelle said the weaker than expected consumption figure in the latest GDP numbers was something the central bank could only watch closely.
Consumption looks likely to upset the bank’s 3.5 per cent GDP growth forecast for 2018.
“Consumption was weaker on the expected, so we just have to see how it goes over the next few months and then we will assess accordingly,” he said.
HSBC chief economist Paul Bloxham, who attended the event, said he thought Dr Debelle’s cautious response to the weak consumption figure was a matter of not placing too much emphasis on any one part of overall economic picture.
“My reading is that they don’t want to put too much weight on one data point,” Mr Bloxham said.
Outside Australia, Dr Debelle, who spoke about the dangers of leverage during the financial crisis, said he was not concerned about the level of corporate debt in the United States.
“It does come back to how much [debt] is enough. It’s not obvious to me that [corporate debts] are excessive.”
He also said public debt was not necessarily a problem.
“Public debt in Japan is currently at 240 per cent of GDP, but there has not been a crisis. We have seen other countries have debt crises at considerably lower levels of debt to GDP.”
Original article here