RBA decision to keep rates on hold influenced by improving capital city home values: RP Data’s Tim Lawless

The Reserve Bank board would have taken into account the improvement in capital city housing markets over the past two months in deciding to keep rates on hold today, according to RP Data national research director Tim Lawless.

Lawless says improvements in capital city home values – up 0.6% in July and 1% in June according to RP Data- Rismark figures – provided “some further evidence that Australian consumers are starting to respond to lower interest rates”.

In his monetary policy decision statement today RBA governor Glenn Stevens noted that "monetary policy is easier than it was for most of 2011, with interest rates for borrowers a little below their medium-term averages"

While Stevens said it was "too soon to see the full impact" of those  interest rate changes, he said "dwelling prices have firmed a little over the past couple of months" while there was also highest demand for business credit over the past six months for "several years".

“The bank is likely to be increasingly vigilant not to overstimulate the housing market, which is likely to be one of the reasons behind their decision to keep interest rates on hold," Lawless says.

“Most of the housing market indicators are now pointing in a positive direction.  Since the start of the year RP Data has been seeing a reduction in total stock levels, clearance rates have improved, homes are taking a shorter number of days to sell and vendors are discounting their initial asking prices less.  All these factors, together with the turnaround in value declines, is point to a stabilising housing market and less of a requirement for lower interest rates,” Lawless says.

Michelle Hutchison, spokesperson for financial comparison website RateCity.com.au, says even though the RBA held fire today, variable-rate borrowers will have extra money in their pockets from two rate cuts in May and June this year.

“The Reserve Bank has cut the cash rate by 75 basis points this year and lenders have passed on an average of 52 basis points to their variable home loan customers. This is worth an extra $103 per month for a $300,000 home loan,” she says.

Hutchison says RateCity.com.au expects to see more new tactics from under lenders, under pressure from the slow mortgage growth, to encourage borrowers to spend their savings or take on more debt.

Mortgage Choice spokesperson Belinda Williamson says the decision came as no surprise with the Australian economy showing positive momentum with recent rises in retail sales, housing prices and construction activity while unemployment figures and interest rates remain low.

“All of this has contributed to a small but promising rise in consumer confidence,” she says.

“However, soft inflation figures released this month show the Reserve Bank still has room to move should our domestic economy lose balance or the situation in Europe worsen.”

Ray White Group chairman Brian White says the unchanged cash rate decision won’t stop market momentum heading into spring.

“Spring is season of hope. Traditionally sales volumes measure up to 15% over the levels of the preceding autumn/winter months.”

“As a company we’re seeing steadily improving monthly results in post-GFC years, and most property data providers are reporting fabulous auction clearance rates and improved home values across the board," White says.

“These are all wonderful signs for our market nationally.

“Sentiment is key and we’re seeing purchasers spirits are picking up. We expect the RBA decision today won’t impact those prospective buyers from engaging in the market.”