Industry perspectives on the RBA’s interest rate hold

When interest rate change is announced each month, industry members take to the media to share their thoughts on what this means for consumers, home buyers and the property market generally.

If you're looking for a quick crash course in interest rates, and the perspectives around them, then read this article first.

Property Observer has cherry picked some of the industry's responses to the RBA's decision to keep the interest rate on hold in June.

Place Estate Agents CEO -  Damian Hackett (discussing the Brisbane market)

Certainly transactions have been taking place and we are seeing buyers active, but there has also been a bit of negative sentiment lingering in the market.

Keeping interest rates on hold will only strengthen confidence amongst buyers as it improves affordability, and that is the key for activating buyers.

As has been widely reported, Brisbane is currently in a very good position affordability-wise – not only are we yet to see the big price rises experienced by Sydney and Melbourne in recent times, but finance is also very affordable, with interest rates low and banks competing to secure business.

Laing+Simmons general manager - Leanne Pilkington

Over the past few days we have been confronted by news stories arguing the property boom is over, that confidence is plummeting and other overly dramatic claims.

Taking a step back, those experienced in the industry know that it's simply business as usual for the housing market.

A slight easing in house prices in May is simply a reflection of the current state of the market, with factors like seasonality and prevailing affordability issues exacerbated by a tough budget playing their part.

A property purchase or sale has always been a major financial decision. However it's also a strictly personal decision, and no amount of market speculation and outspoken commentary should detract from the need for people to carefully weigh up their own needs and financial capacity.

There are still impressive prices being achieved by vendors and buyers continue to enjoy an equal balance of power in negotiations. In short, the market keeps on ticking over and today's rate decision should see this continue over the winter months.

1300HomeLoan managing director - John Kolenda

The federal budget and its aftermath haven’t done anything to inspire consumer confidence and the latest data also shows property values nationwide have taken a hit

Under these circumstances the RBA remains justified in staying on the sidelines while the budget is flushed through the system and other economic data is assessed.

It’s still 50/50 going forward on whether the next rate movement from the RBA will be an increase or a reduction.

Whatever happens, we don’t expect any big movement in rates and the current level looks like it's the new norm for the foreseeable future.

See the next page for thoughts from REINSW, HIA, Mortgage Choice and RateCity.

REINSW president - Malcolm Gunning

The decision to keep interest rates steady came largely as expected. The budget and the fall in consumer sentiment which followed, coupled with the steading demand for housing and a levelling out of the price spiral, left the Reserve Bank with little choice.

The run of historically low interest rates will come to an end and we encourage those who are thinking of entering the property market to factor this into their budgets

HIA chief economist - Harley Dale

Today’s statement conveys the RBA Board has a high degree of comfort with the current cash rate of 2.50 per cent, given an environment where competing factors are influencing Australia’s overall economic performance

A shining light for the Australian economy is the recovery in new residential construction activity.

It is encouraging that today the Bank confirmed the message that interest rates are on hold for a considerable period of time. A period of stability will maintain a positive environment for residential construction activity to boost economic growth throughout 2014 and into next year.

Today’s interest rate statement hopefully reduces the recent elevated level of conjecture, and therefore uncertainty, regarding the direction and timing of the next interest rate move. This uncertainty is itself unhelpful for the sustainability of a residential construction recovery.

CEO Rate City - Alex Parsons 

In light of the recent Federal Budget, where frankly, most Australians are going to be worse off, it's great news for mortgage borrowers in that their repayments will be steady for another month.

For many Australians out there, particularly those buying their first home in the east coast city markets it's very difficult to get a foot on the property ladder, and it's likely to get harder as Budget cuts hit the hip pocket.

While that may be surprising for certain people trying to get into the house market, a combination of low interest rates plus income increases over that period of time has caused this impact.

Despite the housing affordability being its best position for the last 12 years, for any Australian out there, particularly buying their first home in the east coast city markets, it's still very difficult.

So my tips for those types of home buyers would be to be wary of interest rates going up in the future. We have record low interest rates today, but make sure that you can afford a 2 percentage point increase in interest rates and still be able to make those repayments. If you can't you'll soon find yourself in mortgage stress and that's not a good place to be.

Mortgage Choice spokesperson - Jessica Darnbrough

The latest Westpac Melbourne Institute Index of Consumer Sentiment fell by 6.8% to 92.9 – the lowest level since August 2011.

The sharp fall in sentiment is indicative of an unfavourable response to the recent Federal Budget.

According to the Index, 59.2% of Australians said they expect their family finances to “worsen” over the coming 12 months as a result of the Budget.

In the months leading up to the Federal Budget, many economists had predicted interest rates to rise in the not-too-distant future. However, this may no longer be the case. Instead, the Reserve Bank is likely to leave rates on hold for some time and wait and see what happens to consumer sentiment over the coming months.

In fact, in the minutes of the Reserve Bank's May Board meeting, it was suggested that the current accommodative stance of monetary policy was appropriate for some time yet given the current outlook for the economy and the significant degree of monetary stimulus already in place.

See the next page for comments provided on the day of the RBA decision from RP Data, Finder and L J Hooker.

Comments provided on the day

RP Data research director - Tim Lawless

From a housing market perspective, the Reserve Bank should be less concerned about housing markets overheating, with RP Data yesterday reporting the first fall in dwelling values in a year over the month of May and the trend rate of growth across the housing market has been cooling. Australia’s housing market has seen two years of escalating property values, so from a cyclical perspective the housing market is due for a slowdown.  Cooler housing market conditions shouldn’t surprise the Reserve Bank, who have been warning about overheated conditions and speculative investment activity in the Melbourne and Sydney markets. 

Gross rental yields in both these cities have fallen to near historic lows as value growth has substantially outpaced rental growth.  With the heat potentially coming out of the housing market, the RBA will find it much easier to keep interest rates at their low setting in an effort to continue stimulating housing construction and consumer spending. Add to the recently weak housing market a stubbornly high Australian dollar, lower commodity prices, slowing dwelling approvals and weaker consumer sentiment post budget and it’s clear that the RBA is likely to hold off on rate hikes for the foreseeable future.

Finder money expert - Michelle Hutchison

Despite new figures showing a month-on-month drop in property prices across the country, property values are much higher than ever. In fact, our research shows that national average (across five capital cities) property prices have increased by over $133,000 or up 27% to $628,320 (RP Data). 

If you waited for a property to drop before buying, interest rates could rise and outweigh the benefit of waiting. Australia's biggest Reserve Bank survey of leading economists and experts all expected the cash rate to remain unchanged today but the majority predict a rate rise by the end of the year or next year. If you waited a few months for a $500,000 property to drop by 4% to $480,000, with a 10% deposit and a loan size of $432,000, the lowest three-year fixed rates could rise by then to 5.19%. If you purchased a property now at $500,000 and a 10% deposit and loan size of $450,000, locking in the cheapest three-year fixed rate of 4.69% could save you about $1,400 over 3 years compared to waiting for property prices to drop and rates to potentially increase.

L J Hooker deputy chair - L Janusz Hooker

Looking forward, the only hiccup appears to be the uncertainty surrounding which federal budget measures will pass parliament.

Initially this caused a drop in consumer confidence but that appears to have passed.

The good news for home owners is the longer this uncertainty remains in place the longer interest rates will remain on hold.