Housing conditions still to fall as RBA keeps rates steady

  • By AB+F Editorial

Under normal conditions, a low interest rate environment would be stimulatory for housing markets but with falling confidence and an economic slowdown activity in the sector is expected to fall sharply in the coming months.

This is the assessment of CoreLogic head of research Eliza Owen.

On Tuesday, the Reserve Bank kept the cash rate steady at 0.25 basis points as it waits to assess the impact of low rates and stimulatory measures on the economy.

Owen said the record low rate might be in place for years to come.

“The RBA have stated they would not increase the cash rate until inflation is well within the 2 – 3 per cent target range, and the labour force I trending towards full employment,” Owen said.

For the housing segment, Owen said that monetary and fiscal stimulus has been coordinated so as to not add excessive demand for housing.

“As part of additional cheap funding for commercial banks, funding facilities will be extended for every dollar lent to businesses, but not housing loans,” Owen said.

She added that most banks have only factored rate cuts into fixed-rate mortgage products, limiting flexibility for consumers as rates hit record lows.

“In any case housing market activity is clearly slowing amid high uncertainty, and further monetary policy changes may not have contributed to buying and selling decisions at this time.”

Nevertheless, Owens, said that “hopefully later this year” as the virus is contained and the economy begins growing again, the low interest rate setting along with pent-up demand should help support housing market conditions over the longer-term.