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The Reserve Bank has left the official cash rate on hold for its ninth meeting in a row, amid growing signs the property market has peaked.
The cash rate hasn’t moved from its record low of 1.5 per cent since August 2016, following an earlier cut to 1.75 per cent in May.
Those cuts sparked a flood of investors entering the market, leading to rapid capital gains, but recent measures introduced by the banking and securities regulators to clamp down on investor lending and interest-only loans, combined with out-of-cycle rate hikes by the major banks, have poured water on the market.
Data from research firm CoreLogic last week showed house prices in Australia’s capital cities fell 1.1 per cent in May, led by declines in the two biggest capitals. Over the past five years, Sydney and Melbourne dwelling values have risen by around 75 per cent and 55 per cent respectively.
In his statement, largely unchanged from last month, RBA Governor Philip Lowe said housing market conditions “vary considerably around 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 additional 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.”
CoreLogic head of research Tim Lawless said financial markets were beginning to lean towards the likelihood of a rate cut in the near future.
“One of the key barriers to rate cuts — the hot housing markets of Sydney and Melbourne — have shown signs of slowing,” he said.
“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.”
Mr Lawless said that may take some pressure away from the RBA to hold rates steady, given other sectors of the economy could benefit from lower interest rates.
AMP Capital chief economist Dr Shane Oliver said the chance of another rate cut by the end of the year was steadily rising.
“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 a note this week.
“In the meantime, the softening in the Sydney and Melbourne property markets will provide flexibility for the RBA to cut again if needed.”
According to a survey of 30 economists and experts by comparison website Finder.com.au, however, four out of five expect the next cash rate move will be up, with three quarters of those predicting a rise some time in 2018.
Source: Frank Chung 7th June 2017