News - 27 Sep, 2019

RBA October Rate Cut to Boost Home Values Despite High Unemployment

Scroll Down

Amid speculation that the easing of monetary policy does little to stimulate mid-term growth, the Reserve Bank of Australia (RBA), has cut the official cash rate to a record low of 0.75%. The reasoning directly associates with rising unemployment, US-Chinese trade tensions and a GDP growth rate that has reduced to 1.4%, it’s lowest in 10-years.

Sure, this all sounds formidable. But the truth of the matter is the Australian economy is fairing well despite the turbulence. According to the RBA governor Philip Lowe, the economy has reached a turning point, with interest rates expected to remain low for some time. This tactic, Philip Lowe says will allow the RBA to reach their inflation target and to decrease unemployment rates to an acceptable level.

The upside is that the cost of a mortgage is continuing to fall, which makes owning a property more affordable. Home prices across Australia are also starting to rise, and this is favourable for homeowners in terms of asset growth.

Based on these outcomes, let’s look at the latest unemployment and housing credit and market data.

unemployment

Australian Unemployment Data

The RBA has a target of 4.5% for Australian unemployment. However, the reality is Australian unemployment rose by 0.1% to 5.3% in August, despite the creation of over 34,000 new jobs.

This increase, according to AMP chief economist Shane Oliver indicates that there is ‘significant space’ within the labour market. Given this capacity, Oliver says that he cannot foresee ‘wage growth improving’ in the short-term.

Fellow economists agree and suggest that the RBA needs to make further adjustments to monetary policy to ‘drag unemployment down’. These economists believe that another rate cut is likely before the end of the year so that 2019 will close with a cash rate of 0.5%.

While this news is welcomed by Australians who own property (meaning mortgages will become more affordable) many wonder how rate cuts affect housing credit and the market.

Australian Housing Credit

Housing credit growth is still below normal levels. The RBA reports that annual owner-occupier credit growth slowed to 4.9% in July, the lowest level since July 2014. While yearly investor credit growth fell to just 0.3%, a considerable change when compared to peak figures of 10.8% growth recorded in April, May and June 2015.

CoreLogic data also indicates that home sales in Australia have stalled. Some 370,000 homes settled over 12 months to August 2019. These figures are estimated to be 17% lower when compared to 2018 data and are approximately 30% lower than the September 2015 peak.

The Head of Research at CoreLogic Tim Lawless says such reductions have an overall impact on the Australian economy if homes are not selling, then spending on retail items such as furniture and appliances also drops. Plus state governments experience a drop in stamp duty revenue, and real estate and finance sectors also take a sizable hit.

However, in saying this, it appears that home prices are rising. This change attributed to lower interest rates, and is expected to turn around housing sales in the closing months of 2019 and transition into 2020.

Australian Home Values

CoreLogic reported on July 2019 that Australia home values had found a floor, as home prices stabilised and a trend of smaller monthly declines became apparent.

In July, five out of eight Australian capitals recorded a marginal rise in value. Regional areas in Tasmania, South Australia and the Northern Territory also recorded a home value increase.

Dwelling Values July 31, 2019

All Dwellings
City or Suburb Month % Qtr. % Year % Total Return % Median Values
Sydney 0.2 -0.2 -9.0 -5.7 $775,978
Melbourne 0.2 0.1 -8.2 -5.1 $619,443
Brisbane 0.2 -0.8 -2.4 3.6 $484,998
Adelaide -0.3 -0.6 -0.8 -5.0 $427,009
Perth -0.5 -2.2 -8.9 -4.0 $441,275
Hobart 0.3 0.1 2.8 8.0 $451,191
Darwin 0.4 -2.1 -8.7 -2.3 $395,119
Canberra -0.3 -1.5 1.1 5.6 $586,535
Combined Capitals 0.1 -0.4 -7.3 -3.8 $591,476
Combined Regional -0.2 -0.8 -3.0 1.7 $374,548
National 0.0 -0.5 -6.4 -2.7 $517,895

Source: CoreLogic

The latest housing market data signifies that this trend is continuing.

August 2019 housing values rose nationally by 0.8%. This rise is significant as it corresponds with an increase in auction clearance rates. Australian housing values also rose in Sydney, Melbourne, Brisbane, Hobart and Canberra.

Dwelling Values August 31, 2019

All Dwellings
City or Suburb Month % Qtr. % Year % Total Return % Median Values
Sydney 1.6 1.9 -6.9 -3.6 $790,072
Melbourne 1.4 1.8 -6.2 -3.2 $626,703
Brisbane 0.2 -0.1 -2.1 2.3 $485,493
Adelaide -0.2 -1.0 -1.1 3.4 $428,203
Perth -0.5 -1.8 -8.8 -4.9 $437,558
Hobart 0.5 1.0 3.1 8.2 $465,535
Darwin -1.2 -1.7 -9.7 -3.4 $388,232
Canberra 0.8 -0.4 1.2 5.8 $592,870
Combined Capitals 0.1 1.0 -5.9 -2.4 $597,072
Combined Regional -0.1 -0.6 -2.9 1.8 $376,076
National 0.8 0.6 -5.2 -1.5 $521,157

Source: CoreLogic

The rise in home values has continued over the last three consecutive months, with national values increasing by 0.6 percent over the quarter. This home value rise is the first quarterly increase recorded since November 2017.

According to Tim Lawless, the change in home values links directly to having a stable federal government and lower interest rates. He also believes that tax cuts and the gradual easing of credit policy are adding fuel to the smouldering fire.

Therefore, it’s likely that rate cuts, along with changes in government and legislation have contributed to a gradual housing market turnaround. Undoubtedly, this outcome will only assist in strengthening the Australian economy.

Are you looking to secure a more competitive mortgage rate? Then it’s time to contact eChoice. Our brokers have helped thousands of Australian’s secure the right home loan at more affordable rates.

Words by Tricia Snell

You might also like:

Get your tailored home loan report. Start Now