Despite the the fastest rise in house prices in 32 years, the Reserve Bank of Australia must keep the historically low interest rate of 0.10%, it announced after its monthly meeting on April 6.
Good news for first-time homebuyers trying to break into the market and continually encouraging investors to return, RBA Governor Philip Lowe has indicated he is determined to resist calls to raise the rate in order to to cool overheated real estate prices.
“It’s all about ‘stability as you go,” said Matthew Hassan, senior economist at Westpac. “He’ll want to get us through the end of JobKeeper and JobSeeker… and make sure everything else goes well.”
“At this point, he wants to keep the economy as a whole in a delicate area and doesn’t want to shake part of it from a distance. The economy is doing well, the vaccine rollout looks good and the virus is not raging here. He can play a more nuanced role later in the year when we get through that time.
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Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres has previously said that trying to curb rising house prices is not his role, and at the moment he does not see the national leap in 2.8% in March on Core Logic figures – with Sydney prices skyrocketing 3.7 percent and prices in Melbourne 2.4 percent – like any threat to financial stability.
With this kind of narrow tenure and the RBA’s broader wishlist of factors such as a stronger job market and wage growth, the decision not to raise interest rates was not a decision. surprise.
AMP Capital’s chief economist Dr Shane Oliver said he believed Mr Lowe would also like to see an inflation rate of between two and three percent, rather than his current rate of around one percent .
“But it just might be the lull before the storm,” said Dr Oliver. “You never know if there might be a more choppy sea with another rise in bond yields, like before, and some clouds looming on the horizon, like an acceleration in headline inflation or the boom. real estate which is accelerating and putting increased pressure on the RBA and APRA.
“We are already seeing headline inflation climbing to maybe 3.5 or 4% with the consumer price index coming back due to the fact that child care costs are no longer covered, the excise tax goes up and gasoline prices go up. And they will keep an eye on the housing market because they don’t want to see any deterioration in lending standards. “
Decisions would also need to be made on when quantitative easing might end before any interest rate changes can even be considered, said Tim Reardon, chief economist for the Housing Industry Association.
But for now, the low interest rate is helping to stimulate the market, as are improving economic conditions, rising confidence levels, government incentives and the lack of supply.
“This price hike will eventually act as a shock absorber for first-time home buyers who currently represent 43 percent of the market,” Reardon said. “But as capital growth improves and rents rise, we’ll see investors come back.
“We are also witnessing a demographic change in the country, with a distance from apartments and capitals with the restriction of migration abroad and the decline in employment in the hospitality sector and in the number of students. , and an increase in the popularity of single-family homes in residential areas, as people want more space. “
First-time home buyers are, therefore, moved away from the inner suburbs of cities, to the outer suburbs or regions, as unaffordability gradually eliminates the benefits of low interest rates and subsidies.
As investors grapple with uncertainty, Australian Real Estate Institute chairman Adrian Kelly said first-time homebuyers were making hay while the sun was shining.
“On the bright side for them, there’s also a bit of talk about ‘easing’ loan restrictions, and we’ve had a few conversations with the federal government about it,” he said.
If the market gets too hot, many onlookers are convinced that banks will self-regulate because they don’t want to be overexposed on their loans. And after the Royal Commission, Mr Kelly said, they are behaving much more responsibly, such as with their decision to suspend mortgage payments on COVID-19.
“Most importantly, the difficulty we are facing right now is a supply issue,” he said. “In a normal market, you have a happy seller and a happy buyer. Now you have a happy seller and a happy buyer … and 19 frustrated and unhappy unhappy buyers. We just need to build more houses. “