RBA Keeps Rates on Hold

Unsurprisingly, the RBA has kept interest rates on hold at 2.5 per cent

The latest housing market statistics are likely to have caused the Reserve Bank some additional deliberation at their latest board meeting. 

Dwelling values were up 2.3 per cent in March, taking the cumulative increase in dwelling values to 15.8 per cent over the current growth cycle, which commenced in June 2012. 

While the headline growth rate is very high, it is really Australia’s two largest cities, Sydney and Melbourne, which are responsible for driving such high capital gains. 

Dwelling values are up 22 per cent and 17 per cent across these two cities since June 2012. It’s not just the pace of capital gains that will be causing some concern to the Reserve Bank, but also the amount of investment in the housing market. 

Investors comprise just over 38 per cent of all new housing finance commitments; the last time investment activity was so strong was just before the housing boom peaked back in 2003. 

Clearly the rate of value appreciation across the Australian housing market has been unsustainably strong over the short term; however, the national economy is seeing a great deal of benefit from the increased level of both developer and buyer confidence, which the RBA is likely to see as a positive outcome from the currently exuberant housing market conditions. 

If value growth continues along the current trajectory through, I think the Reserve Bank will be forced to take action to quell the level of exuberance via higher interest rates.