Uncertainty on house prices set to impact on demand for appliances and furnishings: RBA
The RBA has acknowledged the decline in housing turnover over the past year had "weighed on demand" for items such as household appliances and furnishings that are more likely to be purchased when moving into a new home.
"More generally, the decline in household wealth associated with falling housing prices has likely put some downward pressure on consumption growth," the February RBA statement of monetary policy noted.
"However, these recent falls have followed several years of very strong growth in prices," the RBA suggested.
"If households take a longer- term perspective of their wealth, they may look through the recent declines; even if they do react, it is unclear how quickly this might occur," the central bank advised.
The bank also noted the high level of household debt also remains a key consideration for household consumption.
"In general, more indebted households are likely to be more sensitive to changes in their expected income growth and household wealth; consumption growth may be weaker for a time if households become concerned about their debt levels and choose to pay down debt more quickly.
"It is also possible that households that are highly indebted or credit-constrained will be more sensitive to falling housing prices than to rising prices.
"Weaker housing construction and prices could have pervasive economic effects, it said.
The statement n monetary policy also noted there are a number of channels other than consumption through which housing market conditions can affect economic activity.
"These channels have been incorporated into the central forecasts, but the effects are uncertain, particularly when there is uncertainty about the outlook for housing prices.
"The decline in housing prices will have a direct effect on dwelling investment but the timing and magnitude of the effect is uncertain.
"The pipeline of work to be done is large and is expected to support dwelling investment for some time even though residential building approvals have already declined considerably.
The extent of the support from the pipeline could be more protracted than currently expected.
"But there is a risk that dwelling investment declines sooner and by more than currently forecast.
"This would have flow-on effects to the outlook for employment and household income.
"Very weak conditions in the earlier stages of residential development identified in business liaison point to further downside risk to dwelling investment in 2020 and beyond.
There are also a number of indirect channels through which a decline in housing prices could affect the economy.
"Lower housing prices could limit how much small businesses can borrow when using housing as collateral."
The report noted the decline in housing market turnover associated with the decline in housing prices has implications for business and household services, such as real estate and legal services.
"Changes in housing prices and turnover can also affect public demand through their effect on state government stamp duty revenue."
