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OtherRenee McKeownTue 04 Feb 20

House Price Rebound Gives the Reserve Bank Pause

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The Reserve Bank has decided to hold the cash rate steady at 0.75 per cent despite growing expectations of further rate cuts over coming months.

The rate remained unchanged from the record low in October 2019, which was largely anticipated by market analysts.

RBA governor Philip Lowe said the global economic outlook remained reasonable.

“There have been signs that the slowdown in global growth that started in 2018 is coming to an end,” he said.

“Global growth is expected to be a little stronger this year and next than it was last year and inflation remains low almost everywhere.”

The RBA also expected recovery in residential construction after continued signs of a pick-up in established housing markets.

“This is especially so in Sydney and Melbourne, but prices in some other markets have also increased,” Lowe said.

“Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued.

“Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.

“Credit conditions for small and medium-sized businesses remain tight.”

CBA senior economist Belinda Allen said there appeared to be little if any change to key RBA projections for the next couple of years.

“The main risks with the Australian outlook lie with the consumer and the lack of wages growth,” she said.

“On the flip side, the RBA is more optimistic about an improving residential construction outlook later in the year.”

Capital Economics economist Ben Udy said that persistent weakness in the underlying economy will force the bank to 0.5 per cent in April.

“Given our weaker GDP forecast, we think inflation will fall further below the Bank’s target this year forcing the RBA to cut rates before long,” he said .

“We forecast the Bank to cut interest rates twice this year with the first of those cuts taking place in April.”

Corelogic head of research Tim Lawless added further rate cuts could fuel home buyer demand, although they don’t expect future cuts to the cash rate to be passed on in full to mortgage rates.

“To date, lower interest rates haven’t flowed through to a material improvement in economic conditions,” he said.

“Housing markets have well and truly responded, with national housing values rising 6.7 per cent since the first rate cut in June through to the end of January.

“Importantly we may be seeing some early signs that strength in housing markets is transferring through to other sectors.

“With dwelling approvals recording their first annual rise since mid-2018 and the value of new mortgage commitments up 5.9 per cent over the year to November, driven by a 10 per cent increase in owner-occupier commitments.”

OtherResidentialAustraliaConstructionFinanceConstructionOther
AUTHOR
Renee McKeown
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Article originally posted at: https://www.theurbandeveloper.com/articles/house-price-rebound-gives-rba-pause