The International Monetary Fund (IMF) recently released its Concluding Statement, which details the preliminary findings of IMF staff at the end of an official visit.
Over the past year, the country’s recovery as it transitions from the mining boom has continued despite some setbacks. “Domestic demand growth has strengthened, and employment growth has picked up markedly since the beginning of the year, most of it in full-time jobs,” the IMF said. “But labor market slack remains present, and wage growth has remained weak.”
Prudential policies are reducing risks to the financial sector from housing market imbalances and exorbitant household debt. However, continued efforts at strengthening housing supply in major metropolitan areas are needed to improve housing affordability for more Australians.
Overall, the housing market is expected to cool, but the aforementioned imbalances and household debt vulnerabilities are unlikely to be corrected any time soon. “In the absence of a major shock to the economy, the cooling is expected to be driven mainly by the building completion rate catching up with demand in the major eastern capital regions,” the IMF said.
“But given continued strong population growth and foreign buyer interest, demand growth for housing is expected to remain robust, and, in the absence of a large inventory of vacant properties, prices should stabilize, rather than fall significantly. Declines in household debt-to-income ratios would thus need to be driven by strong nominal income growth and amortization.”
The IMF also commended the federal and state governments’ use of a “multi-pronged approach” to addressing housing market imbalances and the attendant risk to banks.
“Prudential policies by the Australian Prudential Regulation Authority (APRA) have lowered the risks to the banking sector from their large exposure to the housing market in a low-interest rate environment, primarily through a sequential tightening of required underwriting standards. The latest round involved tighter standards on the origination of interest-only loans, and reinforced a cap on lending growth to investors.”
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