- 5 Jun, 2018

RBA Keeps Rates On Hold Due to House Prices, Household Debt & Lack of Housing

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Looking to keep financial stability under wraps, the Reserve Bank of Australia (RBA) has left the official cash rate on hold at 1.5% for the 22nd consecutive month. This move, says the RBA, allows both businesses and households to continue building their financial backing so that they can prepare for expected rate rises in 2019.


eChoice RBA Commentary for June 2018.

The official cash rate remains at 1.5% as:

Inflation sits at 1.9%;

The Australian dollar sits at .75c US;

Wage growth rose 0.5% in March 2018 quarter; and

National housing prices fall.

So, based on this information, what’s the bottom line? Well, economists say Australian inflation is still low, along with wage growth. Unemployment, on the other hand, hovers around 5.5% and economic growth is sluggish. However, the RBA won’t cut rates to stimulate growth and consumer confidence because it fears that this move will overinflate house prices, and further increase household debt. Instead, the RBA will hold tight and hope that the good times are on the horizon, just as they are predicting.

But, here’s the kicker: the Reserve Bank doesn’t blame current house price trends and household debt levels on higher borrowing. But, it does point the finger at a lack of housing stock, which economists suggest is the correct analogy. Why? As the adage says, When supply exceeds demand, then demand will rise. When demand rises, then so too do prices.

Current Housing Demand in Australia

The property market crystal ball, over the next 3-years, predicts that the official cash rate will rise to 1.75% and housing affordability will drop to 31.2%. The Australian population will also grow by 1.6% to almost 25.5 million, based on current Australian Bureau of Statistics (ABS) data.

On a capital city basis, the population will increase by 5% in Adelaide, 14.3% in Hobart, 7.8% in Canberra, 10.5% in Sydney, and 12.1% in Melbourne. Brisbane will see marginal growth under 3%, and Darwin and Perth will decline in population due to mining industry shifts.

So, what’s this data mean for Australian property investors? Let’s look at house prices to get an indication.

House Prices Across the Nation

CoreLogic_RP-Data_Logo

CoreLogic RP Data suggest that national dwelling values fell by 0.1% in April, the seventh monthly drop since October 2017, when dwelling prices started to decline. However, these drops still seem to be predominately associated with the larger Australian capitals such as Sydney and Melbourne. House prices in other capitals – Adelaide, Darwin, Canberra and Hobart – have risen in value.

Dwelling Values as of 30th April 2018
All Dwellings % Change
City or Suburb Month Qtr. Annual Total Return Median Values
Sydney -0.4% -1.2% -3.4% -0.4% $875,816
Melbourne -0.4% -0.7% 3.7% 6.7% $720,433
Brisbane -0.1% -0.1% 0.9% 4.9% $492,911
Adelaide 0.1% -0.2% 0.8% 5.1% $435,042
Perth 0.0% 0.1% -2.3% 1.6% $464,238
Hobart 1.2% 3.6% 12.7% 18.4% $430,138
Darwin 0.6% 0.7% -7.7% -2.5% $433,609
Canberra 0.6% 0.5% 2.6% 7.2% $594,486
Combined Capitals -0.3% -0.7% -0.3% 3.0% $655,419
Combined Regional 0.4% 1.3% 2.4% 7.7% $364,706
National -0.1% -0.3% 0.2% 3.9% $554,605

Source: CoreLogic RPData

Unit values, according to economists, are outperforming houses prices. Capital city unit values have risen by 5.5% per annum, despite the high level of construction.

Unit Values as of 30th April 2018
Units % Change
City or Suburb Month Qtr. Annual Total Return Median Values
Sydney 0.1% 0.2% 0.1% 4.7% $753,304
Melbourne 0.2% 0.3% 5.7% 9.8% $574,003
Brisbane 0.6% 0.0% -0.6% 4.4% $384,970
Adelaide -0.3% -0.1% -0.7% 4.3% $328,274
Perth 0.0% -1.4% -2.3% 1.2% $400,717
Hobart -0.3% 3.1% 8.2% 13.8% $353,292
Darwin -1.1% -4.1% -11.0% -5.7% $334,436
Canberra 0.4% -0.1% 0.5% 5.9% $435,072
Combined Capitals 0.1% 0.1% 1.9% 5.9% $575,191
Combined Regional 0.3% 1.4% 2.4% 7.8% $341,645
National 0.2% 0.3% 2.0% 6.2% $515,610

Source: CoreLogic RPData

House Values as of 30th April 2018
Houses % Change
City or Suburb Month Qtr. Annaul Total Return Median Values
Sydney -0.6% -1.9% -5.2% -2.5% $1,026,638
Melbourne -0.6% -1.1% 3.1% 5.7% $824,955
Brisbane -0.2% -0.1% 1.2% 5.0% $535,292
Adelaide 0.1% -0.2% 1.0% 5.2% $462,049
Perth 0.0% 0.4% -2.3% 1.7% $487,992
Hobart 1.5% 3.7% 13.6% 19.3% $452,935
Darwin 1.4% 3.2% -6.1% -0.9% $496,498
Canberra 0.7% 0.7% 3.3% 7.6% $678,766
Combined Capitals -0.4% -1.0% -1.0% 2.0% $694,944
Combined Regional 0.5% 1.2% 2.4% 7.7% $371,226
National -0.2% -0.5% -0.3% 3.2% $571,441

Source: CoreLogic RPData

Furthermore, owner-occupier lending has increased, while investment borrowing has declined. New South Wales, according to CoreLogic, also had an 8.1% surge over the 12-months to March 2018 in first home buyer activity.

Overall, lower mortgage rates are expected to encourage further housing demand, along with increased levels of overseas migration to Australia. Plus, the RBA predicts that the official cash rate will remain on hold for the rest of 2018 and half of 2019. This news is encouraging for investors and means those who have buffers in place will fair well, with marginal rate rises to cover.

Are you in search of a lower interest rate on your mortgage? If you said yes, then discuss your options with an eChoice mortgage broker. With access to 100’s of home loan products, we can help you find a competitive home loan rate.

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