RBA notes signs of "increased appetite" for mortgages in improving housing market
Mortgage demand is picking up, conditions are improving in the housing market and indicators and enquiries suggest demand for new housing is strengthening, the RBA has said in a more upbeat assessment of of the mortgage and property market in its monthly statement on monetary policy.
The statement reveals that low inflation, the high Australian dollar and a weaker economic outlook - rather than housing market concerns - were behind its decision to cut the cash rate to a historic 53-year-low of 2.75% on Tuesday.
"There are signs of an increasing appetite for borrowing in the household sector, with approvals for housing and personal loans increasing over recent months," says the RBA in its introduction to the lengthy statement.
"This coincides with improved conditions in the housing market. Dwelling prices are around 4% above their low point of mid 2012 and auction clearance rates have also increased to be at, or above, long-run average levels.
"Higher house prices, low borrowing rates and a tight rental market should support a recovery in dwelling investment.
"Notwithstanding a decline in building approvals for higher-density housing in the March quarter, forward-looking indicators suggest that demand for new housing is gradually strengthening.
"This is also apparent in the Bank’s business liaison, with firms noting that enquiries from prospective purchasers and visits to display homes have increased," says the RBA.
The RBA says forecasts for the domestic economy embody a "gradual shift in growth from investment in the resource sector towards exports, non-mining investment and household demand".
"This rebalancing appears to be beginning, but inevitably there remains considerable uncertainty about exactly how it will unfold."
The RBA makes it clear that low inflation, a weaker economic outlook and the high Australian dollar were the main catalysts for the decision to resume its easing policy in May.
"Over 2012, the Board reduced the cash rate by 125 basis points, bringing it to 3% and borrowing rates close to their previous lows.
"Since then, signs have emerged that the economy has been responding to the low level of interest rates,"
However, it says the exchange rate has been "little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time"
"Moreover, the demand for credit has thus far remained relatively subdued.
"Over the earlier part of this year, the Board held the cash rate steady while carefully assessing economic developments and noting that the inflation outlook would afford scope to ease further, should that be necessary to support demand.
"At its May meeting, with inflation a little lower than had been expected, and growth of economic activity likely to remain below trend into next year, the Board judged that a further reduction in the cash rate would help to support sustainable growth in the economy, and would be consistent with achieving the inflation target.
"The Board will adjust the cash rate as appropriate to foster sustainable growth and low inflation," says RBA, suggesting that further rate cuts will be considered.