Housing a “complex picture,” says RBA

by Miklos Bolza19 Oct 2016
In his first speech as governor of the Reserve Bank of Australia, Philip Lowe has given some insights into how the RBA views the national housing market which he described as “mixed”.
With the board of the RBA holding the cash rate steady at 1.5% since August, Lowe said close attention has been paid to developments in the household balance sheets and the housing market.
“Over the course of 2016, there has been some lessening of the concerns that were building up last year. Aggregate credit growth slowed, as did the rate of housing price appreciation. Lending standards were also tightened,” he said at Citi's 8th Annual Australian & New Zealand Investment Conference on Tuesday (18 October).
As a result of these developments, the RBA board felt that lowering the cash rate to its current level would improve prospects for sustainable growth and achieving the bank’s inflation target of 2-3%.
Recent data on the Australian housing market has been mixed however, Lowe said.
“Prices seem to be increasing quite briskly again in some areas, although are falling in others. Growth in rents is very low and there is a big increase in housing supply still to come.”
The RBA issued a warning about the increasing number of new build apartments in centres such as Sydney, Melbourne and Brisbane in its latest Financial Stability Review.
Recent data by CoreLogic has also found that home values rose 4% over five months to 30 September – including the time in which the RBA held the cash rate steady. In the five months prior to 30 April, values rose by 3.4%.
Furthermore, credit growth is still exceeding income growth with much of this credit going towards financing new housing construction instead of consumption.
“It is a complex picture,” he said.
In light of these issues, the RBA felt that holding the cash rate at 1.5% would produce growth in the economy as well as a higher inflation rate.
“We will, of course, continue to review that judgement at future meetings.”