Housing weakness highlighted in cautious RBA minutes

Notwithstanding high levels of overseas departures and motor vehicle sales rebounding, global volatility concerns and the weak state of the local housing market have been highlighted amid the reasoning behind the recent Reserve Bank Board decision to leave rates on hold in September.

“The housing market remained weak, with nationwide measures of dwelling prices falling again in July, to be 3–4% below their peak in late 2010. Building approvals had been flat in July, at levels well below average. Members noted that building activity had been significantly stronger in Victoria than in other states in recent years,” the minutes from the September meeting read.

Volatility is mentioned six times in the minutes in relation to foreign exchange markets, bond markets and global financial markets.

“Members discussed the financial position of the household sector in Australia. Over the past year, the household saving rate increased further and the debt-to-income ratio declined slightly.

“Given the recent renewed volatility in global financial markets, the prevailing mood of caution among households appeared unlikely to lift in the near term.

“While households in aggregate were managing their debt levels well, the mortgage arrears rate had drifted up over the first half of the year, but from a low level by international standards. Moreover, this rise mainly related to loans taken out prior to 2009, when banks' lending standards were weaker; newer loans were performing well despite an increase in interest rates.”

The minutes reveal that the RBA is awaiting "hard data" to determining “the extent to which recent global and domestic developments would reduce capacity pressures in the economy and, in due course, help to contain inflation”.

“Very little hard data were available, as yet, on which to base such judgements. As further information became available on the domestic and international economies, members would continue to assess the medium-term outlook for inflation and growth.

“For the present, however, members considered that the current setting of monetary policy left the Board well placed to respond to evolving global and domestic economic conditions.