It's hard to go more than a day or two without reading a worrying headline about the housing market's woes, led by price falls in Sydney and Melbourne.
However, the property market is not the economy, and what's going on in housing is probably not always as economically important as you might think.National Australia Bank economist Kieran Davies reports that capital city prices are down by about 8 per cent from their peak, which is the sharpest fall in the period since the Second World War.
So, what are the channels through which these falls in housing affect the "real" economy of jobs, investment and consumption? He pointed out consumption growth had slowed far more sharply in NSW than Victoria, even though both have posted hefty falls in house prices. However, he says the biggest drag on growth from the declines in house prices occurs via the construction industry.
The more important issue, as the RBA sees it, is a lack of income growth. That makes sense — the amount of money coming in is likely to have a bigger impact on how we spend than our paper wealth.
But australias economy is equivalent to about 80 % of big 4 banks loan books most of that w housing. The risk is if housing prices dn dn then our gdp size dn dn
Absolutely spot on. Same with population growth, it’s not the economy.
Memo to media - stop talking about it
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