Residential building to suffer from RBA's decision to leave rates unchanged: housing industry bodies

The Reserve Bank has come under heavy fire from the building industry and mortgage brokers for not cutting rates for third successive time at its February meeting today.

The two peak residential construction bodies, Master Builders Australia (MBA) and the Housing Industry Association (HIA), expressed disappointment at the decision and warned of its impact on the building industry and home-buying appetites. 

“Master Builders was disappointed that rates were not cut given the current poor conditions in the building industry,” says Wilhelm Harnisch, chief executive of MBA, following the decision. 

“Monetary policy needs to be more supportive to underpin activity in a building industry clearly stuck in the slow lane of the economy.” 

He pointed to the MBA’s December quarter national survey, which showed the building sector was struggling having lost the “cushioning effect of government stimulus programs”. 

“Sales and forward orders have fallen away dramatically as cautious clients, overseas events and difficulties accessing finance work against any upturn,” says Harnisch. 

“Lower interest rates are needed to restore confidence in the building industry and drive a private sector recovery in the housing and commercial building markets.” 

Harnisch says the building industry “was banking on a further rate cut to help boost confidence to stabilise an increasingly uncertain market”. 

“The Reserve Bank needs to reconsider its strategy and cut rates further to assist in driving a sustainable recovery in the building industry.” 

The HIA described the RBA’s decision as a missed opportunity to “bolster business and household confidence”. 

“A rate cut today would have been appropriate for current economic conditions, but sadly that decision was not taken,” says HIA chief economist Dr Harley Dale. 

“The global and domestic economic outlook remains clouded, within which new housing activity in Australia faces the risk of revisiting GFC lows.” 

Dale notes the widespread expectation for a cut and an increasingly aggressive debate regarding what Australia’s banks would and should do with a cut prior to the announcement. 

“Against this backdrop, leaving rates unchanged has the potential to weigh down on confidence and non-resource economic activity,” he says. 

“Borrowers seeking relief from the uncertain economic climate and cost of living increases will be disappointed the Reserve Bank of Australia has resisted the chance to lower official interest rates,” says mortgage broker Loan Market, part of the Ray White Group. 

Loan Market spokesman Paul Smith says most consumers had been expecting the RBA to reduce the cash rate again after cuts in November and December last year. 

Smith says a recent Loan Market consumer survey found the majority of respondents had been anticipating more reductions to the cash rate. 

He says the RBA likely held off reducing rates due to considerable mixed economic signals in the market such as a mid-range target inflation rate of 2.4%

“We thought the RBA could have applied a 50 basis points cut this month but they have taken a more cautious approach and still have plenty of room to move,” he says. 

“While the fundamentals of the Australian economy remain quite strong and consumer sentiment has been improving, sections of the economy can only benefit from the stimulus provided by lower interest rates.” 

Mortgage broker network 1300 Home Loan slammed the RBA’s decision and called it a “serious mistake”. 

According to managing director John Kolenda, there were so many downside risks in the economy that what was needed was a series of rate cuts, not for the RBA to sit on its hands with a hold decision. 

“With the banks’ costs of funding rising all the time and most sectors of the economy remaining weak, we need to see some real relief passed on to home owners,” he said. 

“This hold decision is a missed opportunity which the RBA will live to regret if the situation in Europe continues to deteriorate while consumer confidence here remains as weak as we have seen in recent months.”

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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