Investors warned national rental vacancy was drifting: RBA February statement

Investors have been told rent inflation was slowing, consistent with the increase in vacancy rates over recent years, according to the February Reserve Bank of Australia (RBA) meeting monetary statement.

The pace of national housing price growth slowed too noticeably in early 2014 but, looking through the volatility, appeared to have changed little since then, the RBA board meeting was told on Tuesday.

"Notwithstanding this, growth of housing prices remained strong over recent months, particularly in Melbourne and Sydney," the minutes said.

"At around 8%, housing price growth remains well above the growth rate of household incomes.

"Survey measures of housing price expectations declined in the December quarter and remain below the levels reached in late 2013.

"Most non-price indicators of housing market activity remain consistent with strong conditions in the established market, which should provide further support to consumption in the near term."

It noted the nationwide rental vacancy rate "has been gradually drifting up since the mid 2000s".

"Accordingly, rental price inflation has slowed, which, combined with strong housing price growth, has resulted in rental yields continuing to fall," the statement read.

HSBC Noted today's official statement from the RBA saw them revise down their GDP growth forecasts to 1.75-2.75% for 2015, from 2-3% previously. Growth is still expected to pick-up in 2016, to 2.75-3.75% (previously 2.50-4%). Underlying inflation is expected to remain around 2.25% in H1 2015, and they continue to expect it to be 2-3% beyond that, in line with their target objective. The statement was generally more down-beat about the pace of the ongoing rebalancing of growth, which appears to have been the reason for this week's rate cut.

The monetary statement noted consistent with the strong growth in housing prices, low interest rates and above-average population growth, there has been considerable growth in dwelling investment, which increased by 7% over the year to the September quarter.

It noted timely leading indicators point to further growth in dwelling investment in the December and March quarters.

"Dwelling approvals, particularly those for higher density homes, have stayed at a high level recently.

"Loan approvals for new dwellings increased by 5% over the year to November and the number of first home owner grants paid for new dwellings has continued to trend higher, increasing by 22% over the past year.

"Inflation in the housing-related components of the CPI remained moderate overall in the December quarter.

"Inflation in the price of new dwellings remained above the average of recent years, consistent with strong residential building activity.

"The RBA's liaison suggests that the upswing in residential construction activity has allowed some builders to increase margins over the past year or so.

"Combined with an increase in the cost of building materials, this has contributed to higher inflation in the prices for new dwellings.

"In contrast, rents inflation remained slow in the quarter, consistent with the increase in vacancy rates over recent years. Utility prices increased slightly, after falling in the September quarter due to the repeal of the carbon price."

The statement offered forecasts for consumption assuming that wealth effects continue to operate as they have done in the past and that there will be a further gradual decline in the household saving ratio.

"Consumption growth could be stronger than anticipated if conditions in housing markets strengthen, particularly in parts of the country that have seen less growth in house prices of late.

"If this is associated with a significant increase in leverage or a decline in lending standards, it could pose some risk to macroeconomic stability.

"However, another possibility is that ongoing buoyant conditions in housing markets will have less of an effect on consumption than previously.

"In particular, in recent years fewer households appear to have been utilising the increase in the value of their dwelling to increase their leverage or trade up.

"This possibility would imply that the saving ratio will be higher and consumption growth a little lower than expected based on historical experience.

"In addition, there is significant uncertainty around the size of the effect that the large changes in commodity prices, particularly oil prices, will have on household saving and consumption behaviour."