‘Wouldn’t be surprised’: RBA boss Philip Lowe expects house prices to fall 10 per cent

The Reserve Bank governor says he wouldn’t be surprised if Australian house prices fall by an average of 10 per cent.

Philip Lowe said he thought house prices could fall but it was unlikely they would return to pre-pandemic levels given how much they surged by over the past two years.

“It’s hard to forecast asset prices and prices went up 25 per cent over the past two years – a very, very big increase,” Dr Lowe told a parliamentary economics committee on Friday.

“It would not surprise me and this is not a forecast but it would not surprise me if prices came down by 10 per cent. And even if they did that they’re still up 15 per cent over three years.”

Dr Lowe has been put in the hot seat at a hearing examining the central bank’s five-month streak of rapid interest rate hikes as part of its mission to return inflation to between two and three per cent.

With inflation running at a 30-year high of 6.1 per cent, the RBA has successively lifted the key cash rate target cent since May to 2.35 per cent.

Dr Lowe said the amount of homebuyers who took out fixed-rate loans soared to nearly 50 per cent after the RBA set the cash rate at a historic low of 0.1 per cent in November 2020.

Camera IconReserve Bank governor Philip Lowe appeared before an economics committee on Friday. NewsWire/Monique Harmer Credit: News Corp Australia

The official interest rate, which guides mortgage and other loan rates set by lenders, remained at 0.1 per cent until May this year.

“People did respond sensibly in taking out fixed rate loans during that period. So they were prepared to go and buy a property or undertake other investments because they could get fixed rate money for three years,” Dr Lowe said.

“Our underlying message was the Reserve Bank would be standing with the community to do what was necessary to support the economy. We thought that when interest rates were going to stay low for a long period of time.”


Dr Lowe confirmed there would be further interest rate rises, but he said the size and pace of those increases were not set and would depend on broader economic conditions.

He said the central bank was “committed to returning inflation to the 2 to 3 per cent target range”.

Dr Lowe said the RBA would “do what is necessary to make sure that higher inflation does not become entrenched”.

However, he acknowledged the pressure interest rate rises were having on Australians.

“Higher interest rates are putting pressure on households, just at the time that higher petrol prices and grocery bills are squeezing budgets. So it is a difficult and a concerning time for some people,’’ he said.

“The alternative, though, of allowing higher inflation to become entrenched would be even more difficult and it would damage our economic prospects.”

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