For the 27th month in a row, the Reserve Bank of Australia has decided to hold the cash rate steady at 1.5%.
The Australian economy is performing well. The labour market’s outlook is good; unemployment is down to a six year low of 5% while GDP is at a six-year high; inflation is low too. Cash rates are not decided on growth alone, however, and with wage growth low, high debt and the falling housing market, a level of economic uncertainty remains.
The Australian Housing Market
The cooling of the Australian housing market has been stinging a bit – the predicted big prices expected for the penthouses sold in the final of The Block 2018 weren’t met. Expected to go for $3m, the two penthouses didn’t quite hit that height, though one was only $9,000 off the mark. This wasn’t a simple gripe from the contestants – CoreLogic’s data that week showed a fall in the national housing market of 0.5%, and that the median house price in Melbourne had dropped by $45,376 in the last year. Median Sydney prices fell by $72,041 in the same period.
Investor Demand In The Housing Market
Investors are paying more for interest rates than owner-occupiers, with investor mortgage rates rising up to 50 basis points over the same 27 months as the RBA was holding the cash rate steady. Investors are also paying 55 basis points more on loans than owner-occupiers. Owner-occupiers aren’t escaping increases either, with their variable rates rising on average 15 basis points in just the last two months.
The RBA’s statement notes that although investor demand has slowed with the change in the housing market, growth in credit to owner-occupiers “has eased but remains robust”.
The continued hold in the cash rate is consistent with sustainable growth in the economy and achieving the inflation target over time, according to RBA Governor, Philip Lowe.
The RBA is likely to hold the cash rate for a while longer. On the bright side, housing affordability is improving and the cost of debt is at its lowest since the 1960s. All-in-all, the RBA expects these factors should help to shore up housing demand.
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