Gravity may well have caught up with the "stupidity" surrounding house prices, prominent economist Chris Richardson says.
Richardson warns that this, in turn, will further slow the pace of home building which in recent years has propped up the broader economy.
This slowdown in home building comes at a time when production has weakened with large gas projects reaching completion and Cyclone Debbie’s havoc across north east Australia.
He warns “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”.
But, even so, Richardson in the latest Deloitte Access Economics business outlook expects Australia will start raising interest rates in 2018 following the global trend set by the US.
However, because of Australia’s heavily indebted households, the Reserve Bank won’t be increasing rates sharply, he says.
“Australia will sit more towards the back of the queue for global interest rates normalisation,” Richardson said today.
Declining commodity prices could also spell trouble for the federal, Western Australian and Queensland budgets, as will housing markets for the NSW and Victorian budgets further down the track.
However, the outlook has a relatively positive view of South Australia’s economy.
“South Australia has benefited from favourable shifts in interest rates and exchange rates,” it says. “In fact, and despite popular opinion, the State economy’s growth actually picked up of late. Even so, some big challenges remain, given both demographics and an unfavourable industry structure.”
Richardson said it made sense for the Federal Government to abandon “Plan A” of spending cuts after years of going nowhere for a “Plan B” of tax and spending through the Medicare levy, a bank tax and Gonski 2.0 school funding.
“But it’s a real worry that a conscious shift to the centre still didn’t unleash much bipartisanship in Canberra,” Richardson said.
“That says official figures – which assumes stuff passes the Senate – remain at risk.”