Rate rest continues for borrowers in August

Last week saw the Reserve Bank of Australia elect to keep the official cash rate on hold at 4.75 per cent for the eight consecutive meeting, a move which no doubt had home owners and prospective buyers sighing in relief.  I am hopeful that the move will help to provide some stability for home buyers and investors in what is otherwise a time of economic uncertainty.   

While rates have been steady for some time now, it was quite possibly this decision that attracted the most speculation.   The RBA had a number of conflicting factors to consider which required juggling, and ultimately that balancing act led to the consensus that rates were best left on hold. 

In his statement, Reserve Bank Governor Glenn Stevens cited the “acute sense of uncertainty in global financial markets over recent weeks” as a reason behind the Bank’s view that it was “prudent” to leave rates on hold. 

He also referred to the national economy, noting that “a full recovery of flood-affected production now looks unlikely before early next year.  Precautionary behaviour by households also looks likely to keep some areas of demand weaker in the near term than earlier expected.”  The RBA’s August monetary policy statement which came out last Friday (5 August), confirmed the Governor’s allusion to less-than expected growth, as it revised growth over 2011 downwards. 

Despite such global financial uncertainty and a reduced national economic growth outlook, growing levels of inflation continue to remain an issue.  To this end, the Governor noted that “year-ended CPI has been high... the Board remains concerned about the medium-term outlook for inflation.”  With inflation being such an important element in the interest rate decision making process, it is likely that should it continue to grow it will be a driving factor in the Bank’s future decisions to lift rates.

Interest rates are very powerful in Australian society.  For many Australian home buyers and investors, interest rates are worrying and, if they rise, affect the capacity to pay mortgages and the ability to purchase property.  This rate hold in August should go some way to keep these concerns at bay, however based on the implications of the Governor’s statement, I would suggest that home owners and investors should also be looking at ways that a potential lift in rates can be accommodated practically. 

Having said this, I remain of the belief that the residential real estate market continues to present some good quality, affordable opportunities for both home buyers and investors who are in a position to buy.  I would encourage them to sit down with real estate and mortgage professionals to best understand how they can plan and prepare to take advantage of such opportunities, including in this analysis the possibility of a rise in interest rates down the track. 

If you wish to speak to a real estate professional regarding your property purchase options, please don’t hesitate to drop into any one of the CENTURY 21 Australia real estate offices around the country.

Posted by Charles Tarbey on 08/08/2011 at 9:12 AM | Categories:

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