In a move that was not too surprising, the Reserve Bank of Australia decided to leave the official cash rate on hold at 4.75 per cent when it met last week. This was the third meeting in a row that the decision to keep rates steady has been made.
In his statement following the announcement, the RBA Governor Glenn Stevens seemed to indicate that rates would remain at current levels for awhile yet, saying the Board judged that the mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook. He also referred to the bank's expectation that inflation over the year ahead will continue to be within the 2 – 3 per cent medium term target.
For the residential property market, this decision is excellent news and one that I think will provide relief for many homeowners, prospective buyers and investors.
The decision has come at a good time as over recent months the release of data regarding the housing market has been a mixed bag, with some pieces of news putting a bit of a dent in market confidence.
One such piece was the release of the Housing Industry Association/Commonwealth Bank housing affordability index, in which worsening housing affordability was evident at a national level. The index decreased by 1.8 per cent in the final quarter of 2010, ending the year ten per cent lower than the same point in 2009.
Additionally, residential construction activity seemed to exhibit subdued growth in the last three months of 2010, with figures from the Australian Bureau of Statistics showing that the value of residential building work fell by 1.1 per cent in the December quarter.
It is evident that for many Australians the goal of home ownership, and then actually holding on to that property, is becoming more challenging. Therefore, news that interest rates have been kept on hold for another month should help to alleviate some of the pressures felt in the housing market, at least for the short term. At the very least, this reprieve allows people to prepare for future rises which are expected at some point in 2011.
I would definitely advise anyone with a mortgage to be practical in their assessment of rates – there is a strong possibility that the RBA will decide to increase them at some point before the end of 2011. Any change in rates will have an effect on your monthly interest repayments, and thus need to be factored into your budget. The further ahead you can plan for these changes and prepare, the better placed you will be.