There was good news for the residential property market again last week as the Reserve Bank of Australia decided in its monthly meeting to leave the official cash rate on hold at 4.75 per cent. This means that all mortgage holders can rest assured that interest repayments will remain the same for another month at least.
In his statement that accompanied the decision, RBA Governor Glenn Stevens referenced various factors that had influenced the Board's thought processes. He said that:
• Although the global economy is continuing its expansion leading some countries to tighten their monetary policy settings, overall global financial conditions remain accommodative.
• In the household sector there continues to be caution in spending and borrowing and a higher rate of saving out of current income.
• The Bank expects inflation over the year ahead to continue to be consistent with the 2 – 3 per cent target.
On the back of these and the general macroeconomic outlook, the result of the meeting was that the Board judged its current mildly restrictive stance of monetary policy to remain appropriate for the time being.
So what can the residential housing market take from this decision? Although predictably ambiguous, Governor Stevens' statement gives little indication that the RBA has plans to move interest rates in the short term, thus it could appear that home owners will have reprieve from an increase to their mortgage rates for some time to come.
Essentially, I think that this fourth consecutive rate hold will provide some short term stability for the housing market nationally, which to be frank is much needed. Of late, the market has received some negative publicity and it seems as though people have been viewing purchase decisions with some caution since the decision in November to increase rates.
With the significant levels of stock that are on the market at the moment and reduced transaction rates, the certainty that this rate hold brings could very well be the incentive that many prospective purchasers need to return to the market.
It goes without saying however that prudent buyers and investors will still need to consider the very real possibility of future rate rises and how these will impact the viability of their property purchase. As the year progresses, the RBA will continue to monitor the factors as described above and will act accordingly. It could be that the outlook for inflation changes or that consumer spending picks up – if the RBA's view that its current mildly restrictive stance is no longer appropriate and needs to tighten, rates could go up affecting mortgage repayments and budgets.
But for the time being, we can all rest knowing that another month has passed with no rate change and that rates remain at attractive levels. This makes now as good a time as any for prospective buyers to look at entering or returning to the property market.
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