Some typically sensible words from HSBC's chief economist, Paul Bloxham, published in the ever-improving AFR yesterday:
"Indeed, while many commentators might suggest that the decline in house prices should make us worry, to me, this interpretation seems wrong.
The mild drop in house prices, mostly at the upper end of the housing market, is helping reduce the risk of a larger and more destructive fall at a more inconvenient time. Of course, another positive is that wealthier households tend to build up more equity in their properties, so leverage ratios are lower.
Australians are reducing risk in the system at the right time.
Of course, the ultimate insurance policy is that the RBA still has a lot of room to cut interest rates further if it needs. As the 2008-09 experience showed, this can very quickly boost the housing market, given that most mortgages are at variable rates.
As we have seen in the past two months, the RBA has already pulled the ripcord and is attempting to glide in for a soft landing. And if it becomes clear the economy is slowing more than the RBA has in mind, more cuts will no doubt be made. We believe that rates will fall by a further 50 basis points in early 2012. This will provide support for the housing market.
Australia seems to be once again demonstrating how lucky it is, with households deleveraging at a time when income growth is strong. You could call it the best kind of deleveraging."
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