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Housing Market Continued Optimism

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Continued optimism in the housing market and declining unemployment are the likely reasons behind the Reserve Bank’s decision last week to keep the official cash rate on hold.

RBA Governor Philip Lowe says, “The overall outlook is also being supported by the low level of interest rates, recent tax refunds, ongoing spending on infrastructure, a brighter outlook for the resources sector and, later this year, an expected recovery in residential construction.”

“There are continuing signs of a pick-up in established housing markets. This is especially so in Sydney and Melbourne, but prices in some other markets have also increased. Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality. “ says Mr. Lowe

Mortgage Choice CEO Susan Mitchell says “the reduction of the nation’s unemployment rate – which dropped to 5.1 percent in December was a reason why the RBA postponed the rate cut. Also in 2019, the CPI grew by 1.8 percent, which was better than expected.

“Another factor the RBA may have chosen to hold the cash rate this month is that consumer confidence is declining,” she says. “The new consumer sentiment survey from the Westpac-Melbourne Institute showed that consumer confidence had plummeted over January due in part to the devastating bushfires.

“The low level of confidence is consistent with generally lacklustre reports on consumer spending and Board members. But, pleasingly, the Index points to ongoing confidence in the housing market.” At its board meeting in December, the RBA board said it was prepared to further relax monetary policy, indicating a cut in the cash rate is just a matter of time.

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