No surprises as RBA leaves rates untouched
At today’s Board meeting, the Reserve Bank of Australia judged it was prudent to leave the official cash rate on hold at 2% for the fifth consecutive month.
The decision is “unsurprising” as recent economic data did not warrant another cash rate cut this month. The lower Australian dollar has provided some support for the country’s growth and inflation. Furthermore, new data shows business conditions remain relatively stable and property price growth continues to track upwards – albeit at a slower pace than the beginning of the year.
Data from CoreLogic found property prices across the combined capital cities climbed 0.9% over the month of September – taking values 4% higher over the last quarter.
Melbourne was the standout performer, with the capital city recording dwelling value growth of 2.4%.
On the other hand, Sydney property values stagnated, with prices across the capital city climbing by just 0.1% over the course of the month. While Sydney’s property price growth was fairly lacklustre this month, the capital city has performed incredibly well over the last 12 months.
And it is not just property prices that are going from strength to strength. The Australian economy is tracking along fairly well at the moment, providing the Reserve Bank with no urgent reason to change the current monetary policy setting.
Of course, that is not to say we have seen the last of the rate cuts altogether. What happens both locally and abroad over the next few months will determine the future actions of the Reserve Bank. If consumer sentiment, business confidence and economic growth perform sluggishly, we may see the Reserve Bank cut rates again.
Fixed vs Variable
The demand for fixed rate home loans has dropped to a four-year low as rates are tipped to remain at historically low levels for some time.
According to the latest national home loan approval data from Mortgage Choice, fixed rate home loans accounted for just 14.41% of all loans written throughout the month of September, down from 17.41% in August.
Mortgage Choice chief executive officer John Flavell said demand for fixed rate home loans hasn’t been this low for more than four years.
“The last time fixed rate demand was this low was back in August 2011, when this type of home loan accounted for 13.78% of all home loans written,” he said.
“It seems borrowers are increasingly opting for variable rate home loans as they believe rates are unlikely to rise for some time yet.”
"Fixed rate demand was strongest in New South Wales, with this type of product accounting for 16.65% of all loans written.
Of the variable rate loans on offer, ongoing discount products once again proved the most popular with borrowers, with this type of product making up 50.51% of all loans written in September.
“While the property market is showing signs of volatility at the moment, one thing is constant – low rates,” Flavell said.
“While rates are low and there is little talk of future rate hikes, borrowers will continue to opt for variable rate products.”
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