March to a happier tune: cash rate hold shouldn't dampen spirit

March 05, 2013
David Wilson

Today's decision by the Reserve Bank to leave the cash rate at 3% in March need not be seen in a negative light by anyone watching the property market. There have been plenty of positive signs of an emerging uplift in conditions, particularly in sectors of the economy that correlate closely to interest rate movements.

For a start, home loan interest rates are at historic lows, and any future cuts will be icing on the cake for existing borrowers and those looking to get into the property market.  

In addition to low rates, employment remains strong, with the Australian Bureau of Statistics placing unemployment levels at 5.4%. In fact, the unemployment rate has remained below 6% for almost 10 years now – the last time it was above this measure was back in July 2003, when it was 6.1%.  

Property prices now appear to be on the rebound, with national home prices rising by 1.3% over the year to February, according to the latest research by RP Data. Depending on a person’s property investment strategy, this may not be viewed as good news by those looking to get into the market now but it shows better long-term capital growth prospects.  

All these signs point towards an improving domestic economy and property market, and a likely lift in the spirits of both buyers and borrowers.  

As always, exactly what the future holds is unknown, but if the current signs in the economy hold the clues, then it looks like the greenshoots could continue to sprout.

However, this doesn’t rule out the possibilities of further cash rate cuts. With a peak in the mining industry expected later this year, there is still uncertainty around whether the non-mining sectors will be able to fill the gap. Working to balance a two speed-economy, the Reserve Bank has stated that it has the capacity to lower the cash rate, should the need arise.

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Posted in: Interest rates

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