Housing markets remain weak: RBA minutes

Housing markets had remained weak, the RBA has noted today.

The rental vacancy rate in Sydney had increased to the highest level in around 15 years and housing prices in established markets had continued to decline.

"More positively, the pace of price declines had moderated and the modest recovery in auction clearance rates since the start of the year had been sustained," it added.

Sales conditions for off-the-plan apartments and new detached housing had been difficult.

The spike in residential building approvals in February had largely been unwound in March, confirming that underlying conditions for new dwelling activity remained weak.

Data released since the previous meeting had shown that the pipeline of residential work to be done had decreased in the December quarter, but remained high.

RBA board members noted that the forecasts for dwelling investment suggested that population growth could exceed growth in the stock of housing towards the end of the forecast period.

The minutes noted housing credit growth had slowed over the preceding year, but the monthly pace of growth had stabilised over recent months.

In three-month-ended annualised terms, growth in housing lending was around 4½ per cent for owner-occupiers and ½ per cent for investors.

Loan approvals also appeared to have stabilised in recent months.

The central bank noted that, although lending practices were tighter than they had been for some time, the decline in housing credit growth over the preceding year had been driven largely by weaker demand for finance, associated with the decline in housing prices.

The average interest rate charged on outstanding variable-rate housing loans had remained broadly steady.

While banks had increased their standard variable reference rates since mid 2018, rates on new loans had remained materially below the average of those on outstanding loans.

Members noted that banks had recently reduced the rates charged on new fixed-rate loans.

Members discussed the outlook for the domestic labour market in some detail.

As in the previous meeting, members discussed the scenario where inflation did not move any higher and unemployment trended up, recognising that in those circumstances a decrease in the cash rate would likely be appropriate.

As noted at the previous meeting, members recognised that the effect on the economy of lower interest rates could be expected to be smaller than in the past, given the high level of household debt and the adjustment that was occurring in housing markets.

"Nevertheless, a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure," it noted.