Housing demand fundamentals in place but investment yet to pick up: RBA October minutes

Investment in the housing market has remained weak and at odds with housing demand fundamentals, the October minutes of the RBA monetary policy meeting have revealed.

The October 2 meeting minutes note that sentiment in the housing market is improving but also acknowledge the challenges faced by residential developers selling new houses in some areas, “given their prices relative to existing dwellings”.

At the meeting the RBA cut the cash rate by 25 basis points to 3.25%, just one rate cut off record lows.

“Dwelling investment remained at a low level in the June quarter, although there were signs of improving sentiment in the housing market more recently,” say the October minutes.

“Members noted that weak dwelling investment had been at odds with the fundamentals for housing demand, as evidenced by the relatively low vacancy rate, below-average mortgage rates and ongoing population growth.

“They observed that, in some areas, developers had difficulties selling new dwellings given their prices relative to existing dwellings." 

The RBA board also noted that the improvement in sentiment in the housing market had been accompanied by an increase in dwelling prices in recent months.

However, they also note that borrowers continue to deleverage, helped by the recent lowering of mortgage rates.

“Household credit had been growing a little more slowly than household incomes, with members discussing the desire of households to pay down their debts ahead of schedule, helped by the reductions in borrowing rates,” said the RBA.

The minutes indicate the decision to cut the cash rate was made mainly due to global concerns, with members noting that “recent indicators suggested that the pace of global growth had edged down”. The RBA says it had scope to cut rates  due to the inflation outlook being within its target range.

“At its previous meeting, the board had observed that the effects of earlier reductions in the cash rate were still working through the domestic economy, and that the outlook for inflation was consistent with the target over the next one to two years.

"Members concluded that the current assessment of the inflation outlook provided scope to adjust policy in response to the softer growth outlook. Therefore, at this meeting the Board judged that it was appropriate for the stance of monetary policy to be a little more accommodative, thereby providing some additional support to demand over the period ahead,” said the RBA board.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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