With the Reserve Bank of Australia (RBA), keeping the official cash rate on hold at 0.10% for another month, they have reaffirmed their commitment to support the recovery of the Australian economy. They confirmed that they are unlikely to increase the cash rate until 2024 unless there is a return to full employment and inflation targets are met.
“The Board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to
3 per cent target range. For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest”.
The rapid rate of economic recovery in Australia has come at a faster pace than even the RBA had anticipated. Key indicators predict that this speedy recovery will continue. The key indicators that are being tracked – among others – to gauge the rate of the recovery include:
* Unemployment figures have fallen to 5.6% and there are more, people with jobs now than before the pandemic,
* GDP growth figures have been revised up to 4.75 for 2021 and
* CPI only rose by 0.6% in the March quarter.
Source: Australian Bureau of Statistics
What does this mean for the property Markets?
The RBA reported that the price of Australian property has continued to rise in the key markets. The uptake of housing credit has grown among owner-occupiers due in large part to stimulus measures that have boosted first-home buyer lending.
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Interest Rates are likely to Stay Low but there is a Disclaimer
The RBA’s expansionary monetary and fiscal policy is unlikely to be walked back before the unemployment and inflation targets are met. The RBA is monitoring the market for any unsettling trends in household borrowing or deterioration in minimum lending standards. Monetary policy is unlikely to be the go-to lever for the management of property prices. The tweaking of lending
standards and lending criteria is most likely to be utilised to reign in out of control prices. Out of control house prices are usually underpinned by “bad” – excessively high LVR or interest only – household borrowing and shoddy lending practices.
Source: Australian Bureau of Statistics
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Investors are making a Comeback, although Owner-Occupiers are Fuelling the Surge in Property Prices
Despite the most recent boom in property prices being driven by owner-occupiers, investors have made a strong comeback. In March, the value of finance for property investor purchases was stronger than owner-occupier lending in every state except for the ACT.
The value of new loans taken out by investors rose by 12.7% in March and sits at a 54.3% increase for the year so far. This is a staggering growth rate, especially when compared to last years March figure of only 5.4% and the 2019 figure which came in at a negative growth rate of-27.1%.
Source: Australian Bureau of Statistics
Interest rates are at record low levels and the decision by the RBA to hold them at the rate of 010% provides a measure of certainty for homebuyers and investors that their mortgage repayments should remain affordable for a few years to come.
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The Surge in Property Prices is Predicted to Balance Out
Corelogic’s research director predicts that while property prices will continue to rise, there will be a slow-down in the pace of the price surge. This will be due in large part to an increase in properties listed for sale and affordability issues that will inevitably arise as the price of housing increases. However, the positive property market conditions are predicted to continue albeit at a slower pace.
The RBA’s decision to keep the cash rate on hold will be a major contributing factor to reinforce consumer confidence and drive the recovery of the Australian economy.
The current climate of low interest rates, targeted housing schemes and employment stimulus policy is favourable for investors and homeowners who are looking for a better deal on their home loans. Strategic property owners can also benefit from the equity gains in their property to trade up or grow their property portfolio. This may be done with the knowledge that record low- interest rates can keep their loan repayments at affordable levels, for at least the next few years.
The Trilogy team can help you to review your mortgage on your primary residence and investment property, to identify opportunities for you to secure a better interest rate and possibly even lower your repayments.
Book a free 30-minute strategy session today.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).