No surprises as RBA keeps rates on hold
The Reserve Bank of Australia has kept rates on hold at 2.5% today, for the sixth meeting in a row.
Last month Glenn Stevens said that since the last meeting of 2013, there had been information on the global economy consistent with the growth having been a bit below trend, but with an expectation of a pickup this year.
The experts were unanimous in predicting rates to stay on hold last month, and this month there was also very little talk of any rate change.
Deputy chairman of LJ Hooker, Janusz L Hooker, said that this maintaining of rates should help push the market into autumn, with rising unemployment and concerns about inflation failing to dent homebuyer enthusiasm.
He is not surprised by the RBA’s move to keep rates on hold and does not expect them to lift until the end of the year.
“February has just delivered one of the best starts to the real estate year ever recorded and we have not seen any signs of it slowing down despite some murmurs about a property bubble,’’ Hooker said. He did, however, pointed to the struggling Adelaide and Hobart markets that would see a boost in confidence from a period of stable rates.
Hooker pointed to the unemployment rate as a key factor that will dictate when the rate increases will commence.
Buyers shying from fixed loans
Michelle Hutchison from finder.com.au said that with borrowers shying away from fixing their home loans for almost a year, they shouldn’t actually be waiting around for an increase in rates to opt for a fixed rate.
They are seeing more borrowers looking for variable rate loans at present.
“Western Australian borrowers are the least concerned about rising interest rates, with the lowest proportion of borrowers fixing their home loans (averaging 13.48% in 2013) than any other state. On the other hand, we found Queensland borrowers were the most cautious, with over one in five borrowers (21.09%) fixing their home loans on average last year,” she said.
She also said that it’s likely fixed home loans will start rising before the official cash rate does, which may provide a useful barometer for those trying to estimate the next movement.
Meanwhile, RP Data’s national research director Tim Lawless said that the Reserve Bank would be seeing the strong market conditions as a positive scenario, driving investment in dwelling construction and providing a healthy multiplier effect for the domestic economy.
“More housing market activity has translated to greater developer confidence and a consistent upwards trend in new building approvals,” said Lawless.
“RP Data’s February results showed flat capital city dwelling values which will probably reassure policy makers such as the RBA that the unsustainably high rate of capital gain that has been evident since June last year may be winding down.”
He pointed to strong buyer demand across the housing market, with consistently high auction clearance rates and mortgage demand, as measured by their valuation platforms, at record daily averages during February.
“As long as mortgage rates remain low we would expect housing market conditions to remain in positive growth territory, at least in trend terms,” he said.
Impact of steady rates on the commercial market
Simon Fenn, the NSW managing director for Savills, said that investment in the commercial market across the state will remain buoyant with stable interest rates, attracting offshire and local investors. This is largely due to the “positive spread between yields and the cost of borrowing money.”
“In 2013 national commercial sales hit a record $22.2 billion, up 63% on 2012 and we believe this trend will continue through 2014 as owners take advantage of these conditions and trade assets previously not earmarked for sale or take profits. The RBA’s decision to keep interest rates on hold and focus on stimulating the economy is driving the investment market,” said Fenn.
Meanwhile, Clinton Baxter, head of division, city sales and investments Victoria for Savills, said that the stable interest rates would also do positive things for the state of Victoria as well, as it reinforces the relative stability of Australia's economy. Baxter also mentioned the value that commercial assets offer compared to major cities in the Asian region.
“Following record investment into Australian commercial property in 2013, the platform is well set for another record year in 2014. A long term, stable interest rate environment has the added benefit of engendering confidence in small and medium-sized businesses, leading to acquisition of commercial properties for owner-occupation and self-managed superannuation funds,” he said.
You might be interested in reading this analysis on what the cash rate means for home values.
As for what the next movement might be it’s a little uncertain; however, Westpac believes we’re likely to see rate cuts more than rate hikes. Hooker expects there may be a lift towards the end of 2014.
“Our monthly Reserve Bank survey of leading economists expect interest rates to start rising within the next year. If variable rates move back up to the historical normal level of 7%, that will cost borrowers with the average $300,000 mortgage an extra $313 every month in repayments,” said Hutchison.