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Economists review housing, jobs, inflation

AAP logoAAP 14/10/2016 Garry Shilson-Josling, Economist

Economists have turned their focus to oversupply pressures in the housing market, as well as employment and crucial inflation data soon to be released.

As the Reserve bank released its half yearly Financial Stability Review, including the usual warning about a looming oversupply of apartments in the big eastern capitals, the UBS economics team stepped back and had a look at housing valuations.

"Using the Dallas Federal Reserve data, Australia's real house price to disposable income ratio per capita has risen 23 per cent in the four years since mid-2012, the second fastest of the 23 countries in the data set," Scott Haslem, George Tharanou and Jim Xu said.

Despite momentum in prices, the UBS economists said the Dallas Fed figures do not reveal a 'bubble like' exuberance in real per capita house valuations.

But a housing market doesn't need to be in a bubble to pose a risk.

"Expensive housing and high household debt leave Australian housing vulnerable," AMP's chief economist Shane Oliver said.

A crash was unlikely without a recession or sharply higher interest rates, he said.

"However, the surging supply of apartments and the continuing strength of the Sydney and Melbourne property markets pose an increasing risk."

"Best for investors to focus on undersupplied, less loved parts of the property market," Dr Oliver said.

Labour force data for September due next Thursday will bring the labour market into focus.

National Australia Bank's economists said indicators including NAB's own business surveys point to ongoing job-creation averaging about 16,000 a month, only just enough to stop the unemployment rate from rising.

"As such, we expect the unemployment rate to remain relatively stable in the coming quarters, to be at 5.7 per cent by end-2016, easing marginally to 5.6 per cent by end-2017 and stabilising at that level by end-2018," they said.

Commonwealth Bank's Gareth Aird expects a "modest" lift in reported employment in October, but a rise in the jobless rate to 5.7 per cent as labour force participation bounces back after an unexpected fall in September.

But that's just a short-term fluctuation.

"The forward looking indicators of the labour market are pointing to a relatively flat unemployment rate over the near term," Mr Aird said.

In any case, he said the key indicator coming up is the consumer price index, to be published on Wednesday week.

"To us, the inflation data is the most important piece of economic information to be published heading into the November (interest rate) rate meeting (of the RBA)," he said.

ANZ's Jo Masters said the figures should show underlying inflation remains weak, but would not prompt a knee-jerk rate rate cut by the Reserve Bank.

"The RBA has two rate cuts in the pipeline and recent communication has sounded comfortable about policy settings; the domestic economy looks more robust; commodity prices have risen; the property market has re-energised; and the changes to the statement on the conduct of monetary policy have increased the RBA's ability to tolerate below-target inflation on financial stability grounds," Ms Masters said.

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