Blog

August 08, 2018

Interest rates on hold ~ stability breeds confidence

On Tuesday the Reserve Bank of Australia (RBA) decided to keep the official cash rate on hold, which has remained on hold for two years.

This decision has created the longest ever streak without a change for the RBA, which last cut the rate to 1.5 per cent in August 2016.

November 2010 was the last official cash rate increase, which has helped create the stability we love to see in the real estate marketplace.

CLK Director Troy O’Brien said following the announcement that “stability equals confidence” for real estate buyers.

“When interest rates are stable (and not fluctuating) it stabilises the real estate market, which in turn creates confidence for those wanting to enter the market,” Mr O’Brien said.

It goes without saying that interest rates are a major factor in property cycles, and that potential home buyers watch with keen interest where interest rates are sitting and where they may be heading in the future.

When interest rates are low, it generally encourages prospective home buyers to enter the market as home finance becomes more affordable, and this is when those undecided buyers might decide to take the plunge and enter the real estate market.

In more general commentary around the announcement on Tuesday, RBA governor Phillip Lowe that “conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low.

“Housing credit growth has declined to an annual rate of 5½ per cent. This is largely due to reduced demand by investors as the dynamics of the housing market have changed,” Mr Lowe said

“Lending standards are also tighter than they were a few years ago, partly reflecting APRA's earlier supervisory measures to help contain the build-up of risk in household balance sheets. There is competition for borrowers of high credit quality,” he said.

 

Source: https://www.rba.gov.au/media-releases/2018/mr-18-17.html