Philip Lowe’s math gaffe on Australian home prices

Philip Lowe’s math gaffe on Australian home prices

The head of the Reserve Bank of Australia made a humiliating arithmetic mistake about housing prices, but his staff is standing up for him and claiming that he wasn’t carrying a calculator.

In Canberra on Friday, Governor Philip Lowe said that he anticipated a 10% decline in real estate prices by 2023.

But according to Dr Lowe, costs would still be 15% more than they were before the epidemic since property prices have increased by 25% in the last two years.

But a little mathematical calculation demonstrates that the Governor is mistaken.

Property prices will hit their lowest point in the middle of 2023, according to Gareth Aird, the bank’s head of Australian economics, before gradually increasing in the second half of the year.

He predicts a 15% decline from the top in April 2022 to the low point in June 2023, with Reserve Bank rate reduction projected to spur a rebound in the real estate market as inflation pressures ease.

By the end of the year, the median price would have decreased to $860,613 due to a predicted 2% decline.

We’ll use more ambiguous language regarding the time than I have today, he added.

I’m constantly reminded that many people took our earlier statements to mean that interest rates wouldn’t rise until 2024, the official added.

“This was in spite of our claims that interest rates were always subject to the health of the economy.”

Since November, instead of the previous 2.5 percentage points, the Australian Prudential Regulation Authority has mandated that borrowers simulate their capacity to handle a three percentage point increase in variable mortgage rates.

However, Jonathan Kearns, the Reserve Bank’s head of domestic markets, said at the Australian Financial Review Property Summit on Monday that rate increases of 2.25 percentage points since May had slowed the real estate market more than stronger banking regulator regulations had.

According to him, the maximum loan amount has been affected by the cash rate hike of 225 basis points since May considerably more so than by the APRA requirement.

Since the cash rate increased by 225 basis points and was completely reflected in mortgage interest rates, the maximum loan amount for borrowers was cut by around 20%.

Overall, we know that rising interest rates will often lead to a decline in residential and commercial property values, but the degree and even the timing of this decline are very unclear.

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