House prices stabilise while RBA waits for rates cuts to work their magic

RBA governor Glenn Stevens says Australian households are continuing to manage their debt obligations while noting that house prices may have stopped their “gentle decline” following cash rate cuts that began in November last year.

This supported his August monetary policy decision statement that “dwelling prices have firmed a little over the past couple of months”. 

He also suggested interest rates were likely to remain on hold while the RBA waited for the effects of rate cuts to work their full effect on the economy and house prices.

Speaking before the House of Representatives Standing Committee on Economics Stevens acknowledged that concerns have been worries expressed about house prices –but mainly from overseas.

He said “bad things can happen” but said Australia had the structures in place and was fairly well-equipped to respond.

He noted that house-prices-to-household-income ratio was up around four to one, but said this was where it had been for the last decade.

He also said that APRA had stress-tested the banking sector and while it would be affected by a global crisis it would remain “well and truly solvent”.

In his opening statement, Stevens said the board has judged the current interest rate sets to be the “appropriate stance”.

“It is too early to tell how much difference the sequence of decisions to lower interest rates late last year and in the middle of this year has made to the economy, though we can observe that dwelling prices may have stopped their earlier gentle decline, and business credit has been growing at its fastest pace for three years,” he said.

But he said if there were a deviation in the domestic outlook, the RBA would be well placed to respond.

Stevens said it was reasonable to assess that the domestic economic activity has been growing “close to trend” for the past 12 months.

He said May and June cash rate cuts were made based on the board’s assessment of economic conditions and the outlook, and with regard to the balance of risks.

“In May and June, the Board eased monetary policy, lowering the cash rate by a total of 75 basis points, following the two adjustments made last year. These decisions were made based on the Board’s assessment of economic conditions and the outlook, and with regard to the balance of risks. They have resulted in borrowing rates being a little below their medium-term averages,” said Stevens.

Responding to the opening statement, ANZ said it “contained little new information over and above recent communications from the RBA”

“On the economic outlook in Australia, the governor noted that the central forecast of growth close to trend will have a different composition than over the past year or two. Resources investment is expected to peak over the next year or two but thereafter exports are expected to pick up.

“Dwelling and non-residential construction is also forecast to pick up following the current period of weakness,” said ANZ.

For advice on navigating hotspots, download our free eBook: Tools for Getting Through the Hotspot Maze. This article first appeared on Property Observer.

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