Record-low rates retained as property prices soar

By Jarrod McAleese

The RBA routinely reviews and adjusts interest rates up and down to either stimulate the economy or cool it down in a period of crisis – alas 2020.

There were positive signs in the RBA’s latest monetary policy update – Governor Philip Lowe noted that the nation’s economy was making steady progress as it rebuilds in the wake of COVID-19.

“The recovery in Australia is well under way and is stronger than had been expected. The unemployment rate fell to 5.8% in February and the number of people with a job has returned to the pre-pandemic level,” Lowe said.

“GDP increased by a strong 3.1% in the December quarter, boosted by a further lift in household consumption as the health situation improved. The recovery is expected to continue, with above-trend growth this year and next. Household and business balance sheets are in good shape and should continue to support spending.”

Key to Australia’s economic resurgence is a healthy property market. And when reviewing the current state-ofplay, there’s no doubt that consumer confidence is sky-high.

According to PEXA, Australia’s leading digital settlement platform, in March 2021, sales settlements were up 26.5% month-on-month and 43.8% year-on-year, with new listings having soared and buyers flocking to snap up their dream home.

And this trend has certainly caught the eye of the RBA. “Housing markets have strengthened further, with prices rising in most markets. Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers,” Lowe said.

However, the RBA is resisting calls from some circles to budge on its interest-rate stance, instead insisting that “given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully.”

Lowe noted that “the Board does not expect the conditions (actual inflation being sustainably within the 2-3%, driven by unemployment falling to increase wage growth) for the adjustment of rates to be met until 2024 at the earliest.”

First home buyers may be tempted to enter the market – with lower rates, securing and maintaining a loan can potentially become more manageable.

However, there’s a fine line – as buyers race to take advantage of the current conditions, prices can be forced up dramatically, as we’re seeing in the first quarter of 2021.

In fact, there have been single days with multiple properties selling for more than $1 million above reserve. It remains to be seen how the RBA navigates this flurry of settlement activity in market.

There’s no indication of a slow-down on the horizon and the initially slated 2024 milestone may need to be hastened in order to keep up with the market’s momentum.