- 3 Apr, 2018

RBA Rate Holding Pattern Aligns with Australian Property Price Reality Check

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eChoice RBA Commentary for April 2018.

The official cash rate continues to stay at 1.5% as:

• Inflation sits at 1.9%;

• The Australian dollar stays at .77c US;

• Wage growth improves marginally by 0.6%; and

• National housing prices continue to drop.

While the Australian property market continues to cool after record price hikes, the Reserve Bank of Australia (RBA) has decided to leave rates on hold. Now, while the RBA decision is associated with many factors such as inflation, unemployment, the Aussie dollar value, retail spending, business investment and the global economy, just to name a few, the housing market is also a major consideration. Why? Well, firstly the RBA estimates that the Australian property market is the nation’s largest asset with a value of around $6.8 trillion. Secondly, of this amount, there’s approximately $1.7 trillion in outstanding home loans, which accounts for approximately 60% of Australian lending assets.

So, what’s the bottom line? Given that the Australian property market is such a large asset, it can also be viewed as the foundation of Australian wealth and the economy. Thus, when this foundation is solid, as it has been over the last five years with strong price rises – Sydney (75%) and Melbourne (59%), the RBA are a little more relaxed. But, when the market shifts and isn’t as solid as it was previously, then the RBA watch it more closely.

But, here’s the kicker: it’s not just the housing price that’s the main factor for the RBA, it’s also the level of household debt that is a concern. Let’s take a closer look at this concept.

When interest rates are low, this means more Australians have more money to spend, they build new houses and renovate existing homes, and they buy investment property. These actions push up household debt, which can restrict economic growth because now there is less money to spend. Thus, business suffers as retail spending drops.

However, economists suggest that Australian lending is continuing to tighten and that dwelling approvals are slowing down as a result. Also, the property market is stabilising.

Australian Property Market Set to Stabilise

ANZ economists suggest that while CoreLogic RP Data indicate that home prices are falling, it’s also important to look at the significant price rises. For instance, in February 2018 capital city home prices dropped 0.3% nationally, yet these prices are still 2.0% higher than 12-months ago.

Also, national auction rates are continuing to improve. National averages hovered between 65% through to 75% range in March. Sale prices were also noted to be steady, which suggests to economists that the worst of the Australian home price declines may be over.

Another consideration is that while values are falling in capital cities, this data looks at the capital as a whole, and not at individual suburbs. If smaller geographies are the focal point, then the market takes on a whole new perspective.

Capital and Fastest Selling Suburb Medians


CoreLogic RP Data suggests that there is a considerable difference between capital city medians and those of individual suburbs. Let’s compare CoreLogic’s median capital city values for Sydney and Melbourne as of December 2017 with those in the fastest selling suburbs in these cities at the same time.

Capital City Home Values Vs Fastest Selling Suburb Medians – December 2017
All Dwellings
City or Suburb State Median Dwelling Values
Sydney NSW $909,613
Emu Plains NSW $758,126
Raby NSW $676,888
Lower Macdonald NSW $487,303
Leonay NSW $845,279
Cambridge Gardens NSW $668,948
Melbourne VIC $703,816
Badger Creek VIC $457,957
Coldstream VIC $591,471
Kolorama VIC $674,536
Wandin North VIC $633,027
Baxter VIC $499,983

Source: CoreLogic RPData.


So, undoubtedly, if each suburbs median differs greatly, then the change in dwelling values monthly, quarterly and annually is also expected to be vastly different from the city changes. Thus, while the RBA base their decisions on statistical averages, these are only a snapshot of the nation, rather than individual geographies. Consequently, this is why property experts recommend looking at suburb data when buying and not focusing on larger demographics.

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