Low Rates Offer Support for Housing Market Slowdown

The RBA’s resolve to keep the official cash rate on hold at 1.5 per cent this week, for a record 27 months, is expected to continue offering support to the nation’s economy at its current rate setting.

As Sydney and Melbourne’s housing markets continue to ease, nationwide measures of rent inflation remain low, RBA’s Philip Lowe explained in his statement.

“Growth in credit extended to owner-occupiers has eased but remains robust, while demand by investors has slowed noticeably.”

Given the stable cash-rate, HIA senior economist Geordan Murray noted the current settings would continue to “offer appropriate support” for the Australian economy.

But despite keeping the cash rate on hold, Murray said borrowers are still wary of any potential hike in their borrowing costs.

“As the housing markets in Melbourne and Sydney continue to cool it will be increasingly important that households have clear guidance on any potential changes they may face in home lending,” Murray said.

“In the post-GFC era lenders have frequently adjusted home loan rates independently of movements in the official cash rate in order to ensure that their lending rates more accurately reflect their true cost of capital.”

Heat out of the housing market

Although the cash rate has remained on hold for a consecutive 27 months, Corelogic head of research Tim Lawless said it’s important to note mortgage rates to investors are up as much as fifty-basis points for the same period.

“That’s the equivalent of two cash rate hikes, and variable rates for owner-occupiers have increased by fifteen-basis points over the past two months alone,” Lawless said.

“The rise in mortgage rates, particularly for investors who are now paying a 55-basis point premium over owner-occupiers, together with tighter lending conditions more broadly, has been a key factor in taking the heat out of the housing market.”

Murray believes APRA’s interventions to curb growth on risky lending was appropriate at the time of implementation, subsequently “cooling the housing market” but says the slowdown now has “its own momentum and does not need additional assistance from the regulator”.

Recent figures published by the RBA show that growth in housing credit to investors has dropped to new lows, with owner-occupier lending growth also now slowing.

“We have already seen the speed limit on investor lending dropped but other restrictions remain,” Murray said.

“It will be important for the RBA, APRA and the federal government to monitor developments in the housing market and ensure that we have appropriate policy settings to ride out the cyclical downturn smoothly.”