The RBA April rate hold will benefit first time home buyers: Eliza Owen

Property ObserverApril 9, 20150 min read


The Reserve Bank of Australia’s (RBA) announcement to hold the cash rate for April at 2.25 percentage points could ease the increase in house and unit values over the next month. A market slowdown would allow greater purchasing power for first time home buyers in unaffordable housing markets.

The number of first time homebuyers taking out home loans has declined as a result of the recent housing boom, which saw more investors enter the market. This is supported by ABS data, which shows that home loans taken out by first time homebuyers have steadily decreased from 18.8% in 2012 to 14.9% in 2015.

Furthermore, according to ABS data, the size of the average home loan increased 1.07% between December 2014 and January 2015, to $346,600.

The decision to hold rates is partly attributable to Australia’s two-tiered housing market. According to data, at February 2015, Sydney experienced quarterly growth of 3.55% for houses, and 2.83% in units. These are down from the January quarter of 4.10% for houses and 3.04% in units, although they still reflect strong investor demand.

Despite Sydney’s strong performance, other markets, including Melbourne and Brisbane, saw contraction in property values at the end of the February quarter.

On the supply side of the housing market, February housing approvals were almost at a five-year high. In NSW, approvals for February 2014 totalled 4,692 dwellings, approximately 2,600 of which were units. Dwelling commencements in NSW, as last recorded in September 2014, were at a high of 14,063, which is a 43% increase in commencements from the previous quarter, and is 49% higher than the five-year average of commencements.

Dwelling commencements also increased in QLD and VIC, but at a lower rate. Nationwide, commencements hit a record high of 54,436, despite migration currently sitting below the five-year average. A further cut in the cash rate could have seen funds misallocated in a market where migrant and first homebuyer demand is in decline.

Overall, despite the benefits to first time homebuyers, the rate hold decision does come within a tricky economic climate for the RBA, where economic indicators have remained virtually unchanged for the previous period.

Some notable indicators include:

  • The unemployment rate decreased from 6.4% in January to 6.3% in February. However, this was coupled with a decrease in the participation rate from 64.7% to 64.6%, suggesting that the unemployment rate fell as people came out of the labour force, rather than finding work.
  • Annual wage price growth was at a five year low in the quarter ending December 2014, at just 2.5%. The December quarter also saw low inflation, which was last recorded at 1.7%.
  • Iron ore is currently at a 10 year low, at $US46.7 a tonne. Iron ore is expected to fall further as competitors amplify supply to win greater market share.
  • Oil prices seem to be stabilising following a significant decline since July 2014. Oil rose marginally in the latest trading session to $US53 per barrel. While the price is stabilising at approximately half the five-year average, Australians may no longer enjoy further discounts in the oil price. 

Though the above factors call for a further cut in the cash rate, the hold is more about timing than tightening monetary policy. This month will reveal new quarterly inflation figures and employment data, which would allow more insight into the impact of February rate cuts. 

Eliza Owen is a market analyst at

Property Observer

First Home Buyers
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