RBA hold at November Cup Day meeting
The November meeting of the RBA has seen the cash rate remain on hold at 1.5 percent.
It has now stayed at record lows for 27 consecutive months.
The August rate hold marked the two year anniversary of the last change to the cash rate by the RBA.
CoreLogic head of Research Tim Lawless said that despite record cash rate lows, rates are still rising.
"Although the cash rate remained on hold for a record 27th month, it’s important to note that mortgage rates to investors are up as much as fifty basis points over the same time frame," Lawless said.
"That’s the equivalent of two cash rate hikes, and variable rates for owner occupiers have increased by 15 basis points over the past two months alone.
"The rise in mortgage rates, particularly for investors who are now paying a 55 basis point premium over owner occupiers, together with tighter lending conditions more broadly, has been a key factor in taking the heat out of the housing market.
Lawless said that despite relatively strong economic conditions, with GDP running at a six year high and unemployment at a six year low, the recent core inflation reading was tracking at 1.7% and wages growth remains subdued.
"The ongoing fall in Australian dwelling values is also likely to be weighing more heavily on the RBA’s deliberations, with CoreLogic indices showing the housing market downturn is becoming more broad based, with most regions around Australia showing a clear slowdown in growth rates, if not declining values," Lawless suggested.
"Although mortgage rates have edged higher over recent months, the cost of debt remains at the lowest levels since the 1960’s.
"With the cash rate remaining on hold for the foreseeable future and funding cost pressures easing, we are likely to see mortgage rates remain close to their current levels which should help to keep a floor under housing demand, especially with housing affordability now improving and labour markets strengthening. "
The Reserve Bank has left the cash rate on hold today at 1.50 per cent, marking eight years since the last cash rate hike in November 2010.
In November 2010 the average loan size was $309,900. Today it is $395,800; a 28 per cent increase, according to RateCity research.
Rates have also changed significantly in this time. The average discounted variable rate in November 2010 was 7.15 per cent. Today it is 4.65 per cent.
As a result, the average Australian is paying approximately $52 less in loan repayments each month, based on a 30-year loan.
RateCity.com.au research director, Sally Tindall, said it’s incredible to think there is a now a generation of first home buyers who’ve never experienced an RBA rate hike.
“Eight years is a long time between increases. Interestingly, the average home owner is paying less per month on their mortgage repayments now – but only marginally,” she said.
“The RBA is unlikely to hike rates in the near future, but that doesn’t mean people should become complacent about paying down their debt.
“Keep an eye on your rate and shop around to see what other lenders are offering. The banks are desperate for new business, particularly as their profit margins are squeezed which is a win for borrowers.”
1300HomeLoan Managing Director John Kolenda said all signs point to the RBA leaving official rates at the all-time low of 1.5 per cent until next year and possibly 2020 with a rate cut now more likely in the long term than an increase.
Kolenda said the RBA once had form for getting amongst the action on Cup Day, but it has now been eight years since the central bank lifted its cash rate on the day that stops the nation, while its last rate movement was in August, 2016.
“It’s a pretty safe bet that the RBA’s cash rate will stay at 1.5 per cent when the Melbourne Cup is next held in November, 2019,” Kolenda said.
“While there are some good signs for the domestic economy with lower unemployment and more first home buyers getting back into the market, the US-China trade war, housing conditions easing in Sydney and Melbourne, uncertain household consumption and the coming federal election will all influence the RBA to maintain its watching brief.
“Lenders have already increased rates out-of-cycle so there is no need for the RBA to do anything.”