RBA kneejerk reaction to house price changes could be disastrous: 1300HomeLoan

Mortgage broker network 1300HomeLoan has warned that if the Reserve Bank reacts in a sudden kneejerk fashion to changes in house price movements, the result could be disastrous.

Managing director of 1300HomeLoan John Kolenda said that with current speculation over a potential rate increase for the first time in four years due to overheating house price concerns, the RBA could be making a major mistake.

He pointed to the fact that the house price rises are mainly happening in Sydney.

“We have consistently warned about the potential detrimental impact of the RBA lifting its cash rate prematurely in response to factors such as house prices, which are in a two speed market,” he said.

“Creating a more confident consumer climate required numerous rate decreases over the past few years and pulling the trigger too early could have disastrous consequences.”

Kolenda said that consumer sentiment is still subdued, with a 4.6% fall in September recorded by the Westpac Melbourne Institute Index, while unemployment is still above 6%.

“The RBA hasn't lifted its cash rate since November, 2010, and we believe the lower interest rate strategy has helped to restore some confidence among consumers in challenging economic times highlighted by patchy retail spending and a soft jobs market.”