Property Market Information: Low interest rate continues to hold

By the resi financial blog team, 06 November 2014

Property Market Information: Low interest rate continues to hold

The big news in the property market at the moment is that the Reserve Bank of Australia (RBA) decided to maintain the all-time low cash rate of 2.5 per cent for the 16th month in a row. This is great news for home buyers, as it keeps mortgage payments at an affordable level - allowing people to lock in good interest rates. For the broader economy it also means continued stimulus from the property and construction sectors.

Why has the RBA held the rate?

The RBA believes that market conditions, although moderate and improving, do not warrant a rise in the interest rate at present. According to a statement by RBA Governor Glenn Stevens, the Bank is likely to hold interest rates for a while to bolster economic growth.

"In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates," said Mr Stevens.

Housing industry experts foresee an extended period of low interest rates, possibly the longest cash rate hold in Australia's modern history. According to the Housing Industry Association (HIA), since 1994 the longest period of interest rate stability was 19 months between 1994 and 1996. With the current run of 16 months, the RBA is close to matching, or beating, that figure.

HIA Chief Economist Harley Dale noted the low cash rate had created an environment which has released a lot of bottled up demand, which is serving to grow the residential construction industry, but also has impacts on other significant household expenditure items.

"Borrowing costs are set to remain at or close to record lows for some time to come," said Mr Dale.

"Super low interest rates have unleashed substantial pent-up demand for new housing to the benefit of many parts of Australia's domestic economy beyond residential construction."

When will things change?

The big question is, how long can this low rate be maintained for, and how much will it increase? According to a recent survey of industry experts by finder.com.au, it is expected that the cash rate will only be raised in August 2015.

Angelo Malizis, CEO of resi, agreed with other survey respondents that the cash rate is likely to peak at 4 per cent in 2017, and experience another downturn in 2018.

With soft economic conditions it is likely that the RBA will continue its accommodative monetary policy for some time yet, allowing the country to establish its wealth-generating strengths before using fiscal tools to reign in speculation.

If you would like to know how record low interest rates could benefit you and your home loan, call in and talk to your local resi loan specialist.

Categories: Home Loans, Property Investment