RBA preview: how a hold impacts housing

by Madison Utley04 Nov 2019

The Reserve Bank of Australia is expected to wait until at least February 2020 before considering if further interest rate stimulus is required, according to CommSec analysis.

The most recent data has shown inflation remains contained, with the headline annual inflation rate inching towards the Reserve Bank’s 2-3% target – one of the leading factors considered in the monthly cash rate decision. 

While the RBA has made it clear future rate cuts are possible, it will likely be loath to take further action soon as lowering the current record low rate could spook Aussie consumers rather than stimulate the economy. Further, unemployment fell last month and home prices are still rising in Sydney and Melbourne.

According to the Real Estate Institute of Australia (REIA), the latest inflation statistics are “good news” for home buyers and renters.

“With the RBA meeting [this] week, home buyers can be comfortable in the knowledge that the latest inflation data would suggest the RBA will not be increasing official interest rates for some time yet,” said REIA president Adrian Kelly.

The Housing Industry Association (HIA) echoed a similar sentiment, with chief economist Tim Reardon noting, “The cuts to interest rates have more than offset the rise in home prices to ensure an ongoing improvement in housing affordability.

“The HIA Affordability Index improved by 2.2% in the September 2019 quarter due to the reduction in interest rates and ongoing wage growth.”

All eight capital cities saw improved affordability over the year to September 2019. Perth experienced the greatest improvement, its index up by 15.3%. This was followed by Darwin (+13.5%), Sydney (+11.9%), Melbourne (+11.6%) and Brisbane (+7.0%).

Affordability in Adelaide (+4.9%), Hobart (+3.3%) and Canberra (+1.4%) also improved.

However, given that interest rates are unlikely to be reduced further in the near future, continued improvement in affordability will require the “right economic conditions”, which Reardon described as including “a strong volume of new homes, low interest rates and supportive policy settings from state and federal governments”.