House Prices, Household Debt and Lack of Housing Keep RBA On Hold

Looking to keep financial stability under wraps, the Reserve Bank of Australia (RBA) has left the official cash rate on hold 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.

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 to 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 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.

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.

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 a mortgage broker. With access to 100’s of home loan products, we can help you find a competitive home loan rate.


From eChoice

Disclaimer: Please read


These articles provide you with factual information only, and are not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. The information in these articles is believed to be reliable at the time of distribution, but EFS does not warrant its completeness or accuracy. Neither EFS nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in these articles. For information about whether a loan may be suitable for you, call EFS on 02 8041 6746.