Heightened consumer confidence, helped by record low interest rates, could push property prices up 30% in the next few years, according to analysis by the Reserve Bank.
In an internal document accessed via the Freedom of Information Act, the RBA predicts home values could rise by as much as 30% within three years due to borrower belief that rock bottom interest rates are here to stay.
Ultimately, the RBA sees rising asset prices (such as home values) as a net positive. The internal RBA briefing notes that a rise in house prices (and other assets such as shares) will lead to increased household wealth and improved cash flow. As a result, Aussies will spend more and that in turn will stimulate the economy and business investment.
According to the analysis, a permanent 1 percentage point (or 100 basis point reduction) cut in the official cash rate would increase “real housing prices” by 30% after about three years. If borrowers had less confidence in a prolonged rate reduction, then house prices would rise by smaller amounts.