Trends in the Housing Sector

Activity in the housing sector is particularly cyclical. The current downturn has many of the usual features: the number of new dwellings being constructed has declined substantially, sales of existing houses are down and the growth rate of housing credit has fallen. In addition to these cyclical features, the housing market continues to be affected by Australia's return to a low-inflation environment. This is seen most clearly in smaller rises in house prices. It can be seen also in an increase in the measures of housing affordability. By making possible lower nominal interest rates, low inflation has increased the access of many borrowers to housing loans.The result has been a significant increase in household indebtedness. These developments have attracted considerable attention, not only by people concerned about the normal cyclical behaviour of the housing sector, but also by those concerned about the implications of higher indebtedness and lower house-price inflation. This article addresses some of these concerns and examines trends in the housing sector. It begins by presenting some broad features of the housing cycle and its determinants, and then reviews recent trends in housing construction and finance. It Some Facts