The trend fall in house prices in Australia was sustained into the early months of 2012.
The RP Data house prices series confirmed a 1.0% fall in prices in January which was only partly offset by a 0.8% rise in February. Even allowing for the mini-uptick in February, house prices remain around 5 ½% below the peak level of late 2010. While this fall in house prices is not acute, it remains disconcerting.
It will keep the RBA with a firm bias to cut interest rates at some stage in the next few months.
Household debt in Australia remains very high and skewed towards mortgage debt. This means that banks who provide the bulk of that mortgage debt will be a little worried about these sorts of falls in house prices and the resulting risk of greater negative equity for some borrowers. If house prices were to fall another 5% or 10%, the problems for householders would be quickly expanded to the banks.
In massive contrast to the house price weakness, private sector CAPEX is booming. It has risen by 30% over the past year and the expectations data point to a further 25 to 30% rise into 2012-13. The growth in business investment is based mainly on the mining and resources boom, with manufacturing and others, mainly services, lagging behind.
It is these sorts of numbers that are giving the RBA increasing confidence about the economic outlook and show yet again the multi-speed or patchwork nature of the economy.
Overall, the news works to keep the RBA on rate cut watch. The downside risks from weaker house prices presents significantly more downside concerns than the upside risks from the mining boom. There is probably not enough in the house prices data to move the RBA to cut rates next week, particularly given the unrelenting expansion in investment, but it will remain on edge.
Global issues remain the main driver of RBA policy for now.