RBA holds rates steady as market enters spring session

The widely-anticipated move keeps Australia’s official cash rate at its lowest ever.

Low interest rates are acting to support borrowing and spending.

RBA Governor Glenn Stevens says the economy continues to expand at a moderate rate and while growth is below the longer-term average, Australia has seen reasonably strong growth in employment and a steady rate of unemployment in the past year.

“In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months,” Stevens says in a statement.

“Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market.

“The Board today judged that leaving the cash rate unchanged was appropriate at this meeting.

“Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

What does it mean for you?

CoreLogic RP Data Head of Research Tim Lawless says home owners are reaping the benefits from the lowest interest rates since the 1950s.

“With housing generally the largest component of a household’s debt, the low mortgage rate setting should help to minimise any mortgage stress and encourage spending in other areas of the economy,” he says.

“For those looking to buy into the housing market, low interest rates provide a good incentive to buy and are likely to ensure the housing market remains active.  Prospective buyers need to be realistic though; mortgage rates won’t stay this low forever and their budgets will need to allow for the times when interest rates return to more normal levels, although that timing is likely to be some way in the future.

Lawless says the RBA is likely to hold rates steady at their current levels, but says there may be another cut to come.

“Given the weaker economic growth readings for the Australian economy, financial markets are currently indicating that we may see another 25 basis point rate cut early next year.

“Economic growth has been sluggish with the latest GDP coming in at a four-year low for the June quarter this year.

“Stimulating economic activity and household consumption by keeping interest rates low is another factor in the RBA’s decision to keep the cash rate at its current historic low.”

Home values grow, but pace more sustainable

The RBA decision comes as the CoreLogic RP Data August Home Value Index shows home values continue to rise, with the combined capital cities recording a 0.3% growth rate for the month of August.

Home owners & prospective buyers will welcome the sustained low interest rate setting.

Lawless says while the Sydney and Melbourne markets continue to perform at above average rates, the rest of Australia’s capitals are recording more sustainable levels of growth. He says while the latest figures are only for one month “other indicators are also suggesting conditions may be starting to cool from their very high levels.”

Be prepared: 5 steps to successful property investment

“August housing market data from CoreLogic RP Data together with recent data on investor credit growth would have been welcome news to the Reserve Bank when they deliberated on the cash rate setting.

“The slower month of housing data may indicate that the housing boom in Sydney and Melbourne is starting to slow and investment lending is starting to moderate in line with APRA guidelines.

“While the Sydney and Melbourne housing markets don’t need any further stimulus, other capital cities as well as regional markets have recorded much more sustainable growth rates.

“Home owners and prospective buyers across Australia will welcome the sustained low interest rate setting which will continue to spur buyer demand and help to offset the effects of softer economic conditions outside of Sydney and Melbourne.”

Study up: Costly property research mistakes to avoid

Market set to bloom in spring

Spring is traditionally the busiest time of year for the property sector and experts predict this year will be no different.

Finder.com.au’s Money Expert Michelle Hutchison says the warmer weather is tipped to bring stiff competition in the mortgage market.

“We’re anticipating more people will take out home loans this mortgage season than any other time this year – 163,105 loans are predicted this spring (September to November 2015), according to our research on total number of home loans financed for owner occupiers, including non-first home buyers and those who are refinancing.

“In addition, the property market exceeded expectations in autumn and winter this year, with the number of owner-occupied home loans financed up by almost 14,000 on the same period last year.

“Coming out of a very strong winter period – which is traditionally a quieter time for real estate sales – only indicates that the property market remains strong and that buyers can expect to face a fair share of competition on the auction circuit this spring.”

Buyers can expect to face a fair share of competition this spring.

Hutchison says while the RBA unsurprisingly left rates on hold today, home owners should already be prepared for any future rises and ensure they factor that into their budgets.

Green thumb: 7 tips to prepare your garden for a spring sale

Renovators delight in low rates

One pocket of the market reaping the benefits of low interest rates is renovators, with more and more Australians taking up the tools to refresh their homes.

The Housing Industry Association’s Renovations Roundup for winter 2015 found the volume of home renovations increased by 1.2% in the past year, picking up from a post-GFC downturn.

“The 2011-13 renovations downturn was the third worst on record, involving a reduction in activity of 15.6 per cent,” HIA Senior Economist Shane Garrett says.

“However, more recent strong dwelling price growth has lifted home equity in the Sydney and Melbourne markets, the local renovations industry reaping the benefits.

“Other markets, however, continue to suffer from the combination of subdued dwelling prices and low household sentiment. The burden of red tape and regulation is also frustrating growth in the market, with nearly one half of renovators identifying taxation and government charges as a serious source of cost pressure.”

Garrett says more and more home owners are expected to turn to renovating, with renovations tipped to increase by 4.5% this year, 0.4% in 2016 and 1.8% and 3.4% in 2017 and 2018 respectively. The total value of future renovations is expected to top $31 billion.

Safety first: How to make a renovation safe for kids

Follow us on Twitter for more news, tips and inspiration. Become our mate on Facebook and explore our Pinterest boards.

Like this article or found it helpful? Share it!