Interest rates remain on hold at 1.5%

Today the Reserve Bank of Australia has kept interest rates on hold at 1.5% for the second month in a row.

New RBA Governor Philip Lowe says the prices in some parts of the housing market are slowing down, but not in Melbourne and Sydney.

“Growth in lending for housing has slowed over the past year. Turnover in the housing market has declined. The rate of increase in housing prices is lower than it was a year ago, although some markets have strengthened recently,” he said.

“Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades,” he added.

REA Group Chief Economist Nerida Conisbee says the board’s caution is driven by the strength of house prices in Melbourne and Sydney.

“The continued strength of the housing market is a further reason for the RBA to keep rates on hold. At the time of the previous cut, house price growth appeared to be moderating. 

“The latest figures from CoreLogic RP Data now show all capital cities achieving growth, with the exception of Perth and Darwin. Melbourne and Sydney are the strongest markets, continuing to achieve more than 9% growth for the year,” she said.

Dwelling values

The latest CoreLogic RP Data shows the median dwelling price in Sydney is $785,000 while in Melbourne the median price is $590,000.

While dwelling values have risen by over 9% in both of those cities, in other places like Perth values have slipped by 7% back to the city’s dwelling value of 2007.

Overall, the combined dwelling value of all capital cities is at 10.9% and the current median price is $575,000.

City YOY dwelling value change Median dwelling price
Sydney 10.2% $785,000
Melbourne 9% $590,000
Brisbane 3% $470,000
Adelaide 6.5% $418,000
Perth -7% $480,000
Hobart 8.7% $325,000
Darwin -6% $480,000
Canberra 9% $556,800

Today’s widely anticipated decision means another rate cut may be a while away, but borrowing has never been cheaper for Australian home owners according to Conisbee.

“Another rate cut before the first quarter of next year is looking increasingly unlikely however a lot will depend on how the economy performs over this time period, as well as what happens in the US.

“If the US Central Bank increases rates, this will somewhat combat our low inflation figures and provide less impetus for a rate cut. At their last meeting, the US Central Bank kept rates on hold but hinted that rates will be increased before the end of the year,” she said.

CoreLogic RP Data’s Tim Lawless agrees rising house prices in some capital cities remains an issue for the RBA.

“Housing market conditions were almost certainly one of the topics discussed at the board meeting, as well as the stubbornly high Australian dollar, an inflation rate that is well below the target range of 2-3% and a remarkably strong rate of GDP growth released for the June quarter,” Lawless says.

“Importantly, while growth conditions in the housing market have slowed, Sydney and Melbourne continue to record strong capital gains, albeit substantially lower than a year ago.  Sydney dwelling values were up 3.5% over the September quarter and the Melbourne values were stronger at 5.0% growth over the quarter. 

“Higher housing supply levels and lower levels of affordability are likely to naturally dampen some of the upwards pressure in housing markets, however investor activity has once again been consistently rising since June and some of the smaller capital city housing markets like Hobart and Canberra have been showing signs of accelerating. Clearly, the housing market is diverse and low-interest rates are only one factor that is influencing conditions. The RBA is likely to be monitoring the housing market closely, looking for any signs of accelerating capital gains in the larger markets, or a ramp up in speculative investment activity,” he said.

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