News

The RBA has kept rates on hold but the cooling property market could see future cuts

07 June 2017

The Reserve Bank has left the official cash rate at 1.5 per cent for another month as the property markets in Melbourne and Sydney both look to be peaking.

The RBA hasn’t moved rates since August of last year, when their cut to a new record-low of 1.5 per cent brought on a wave of investors hitting the property market.

In a statement that was similar to last month, RBA governor Philip Lowe said housing market conditions were different in different parts of the country.

“Prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease,” he said.

“In other markets, prices are declining. In the eastern capital cities a considerable addition supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades.”

“Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of indebtedness.”

“Lenders have also announced increases in mortgage rates, particularly those paid by investors and on interest-only loans.’

Head or research at CoreLogic, Tim Lawless says future interest rate cuts would be more likely if property markets cooled and the RBA felt safe in trying to stimulate the economy.

“One of the key barriers to rate cuts – the hot housing markets of Sydney and Melbourne – have shown signs of slowing,” he told News.com.

“If this develops into a more sustained trend, the RBA may be able to consider alternative scenarios to a steady cash rate. A longer trend of slowing value growth and overall softer housing conditions will lend further support to the notion that house price growth has moved through its cyclical peak.”

AMP Capital’s chief economist Shane Oliver agreed that the chance of a rate cut later this year was building.

“Growth looks like it will come in well below the RBA’s forecasts thanks to weak consumer spending and business investment along with slowing housing investment and subpar growth and record low wages growth is likely to keep inflation lower for longer too,” he said.

“In the meantime, the softening in the Sydney and Melbourne property markets will provide flexibility for the RBA to cut again if needed.”

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