The Reserve Bank was advised to stop reporting on house prices as Covid-19 lockdown measures pulled the handbrake on home sales.
Reserve Bank economists mulled the flow-on effects of stalled market activity and significantly reduced demand on house prices, estimating that prices could fall as much as 15 per cent over the year under its downside scenario.
“If people start mistakenly thinking that we’re experiencing a housing market crash, it’s not going to help things,” economist Richard Evans wrote, in emails obtained under a freedom of information request by the ABC.
The behind-the-curtain look at emails, research and Reserve Bank assistant governor Lucy Ellis’ speaking notes reveal that, at one point, economists recommended that the government temporarily stop all sales of established dwellings.
While the recommendation was not taken up, the documents reveal that the bank expected house prices to fall 7 per cent—somewhere in the middle of its downside scenario of 15 per cent and upside scenario of a 2 per cent fall.
House prices clocked their first decline last month, according to Corelogic’s hedonic house price index (the data provider halted its daily house price index in late May), with national prices declining 0.4 per cent.
Related: Home Sales Fall as 600,000 Jobs Lost
Reserve Bank economists worked to accurately predict Covid-19’s impact on house prices during the height of the crisis in March and April, looking at confidence and unemployment metrics as demand waned.
“Contracts are being cancelled, early-stage buyer interest is very weak and the pipeline is emptying.
“Social distancing restrictions have also made it harder to sell an existing home so turnover has come down. It was already low.”
The Reserve Bank economists noted that there was a big drop-off in demand for new housing.
“Aside from the difficulties of actually inspecting and selling houses, people have other things on their mind than buying a home; they might be worried about their job security.”
Australian Bureau of Statistics unemployment figures published on Thursday revealed that another 227,700 workers lost their jobs in May, pushing the rate of unemployment to 7.1 per cent—the highest jobless rate in almost 19 years.
ABS head of labour statistics Bjorn Jarvis said that almost 2.3 million workers—one in five employed people—either lost their jobs between April and May or worked reduced hours.
“In two months, the percentage of people aged 15 and over employed in Australia decreased from around 62.5 per cent to around 58.7 per cent,” he said.