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'Gravity catching up to housing stupidity'

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July 17, 2017

Gravity could soon start pulling property prices downwards

Home building will further slow amid signs that "gravity may soon start to catch up with stupidity" in the Australian property market, according to Deloitte.

The financial firm also believes that the unprecedented scale of household debt due to low wage growth and elevated property prices means the Reserve Bank will be forced to resist global pressure to lift the cash rate for some time.

The rush to capitalise on those soaring property prices has led to a looming oversupply of apartments in east coast capital cities, but the pace of construction looks sure to drop further off its recent peak, Deloitte Access Economics said in its latest business outlook.

"The pace of home building is set to shrink further amid increasing evidence that gravity may soon start to catch up with stupidity in housing markets," Deloitte Access Economics partner Chris Richardson said in the report.

Property price growth in the two hottest markets of Sydney and Melbourne has started to slow, but values across Sydney, Melbourne, Brisbane, Adelaide and Perth have still risen by about 10 per cent over the past 12 months against the backdrop of a record low cash rate of 1.5 per cent.

Mr Richardson said the Reserve Bank of Australia will start raising the cash rate some time in 2018, but that household debt will act as a brake on the pace of increases.

"Australia's heavily indebted families are now the Reserve Bank's problem, which is why, although interest rates will indeed rise in the next few years, they won't rise sharply," Mr Richardson said.

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