The Reserve Bank of Australia opted to keep the official cash rate at a record-low 2.5% for the eighth consecutive month – but many commentators believe the board will not be able to dither much longer.

 

Dwelling values were up 2.3% in March, but while the headline growth rate is very high, it is really Sydney – which had a 15% spike in 12 months – and Melbourne which are responsible for driving such high capital gains. 

“It’s not just the pace of capital gains that will be causing some concern to the Reserve Bank, but also the amount of investment in the housing market…the last time investment activity was so strong was just before the housing boom peaked back in 2003,” said RP Data research head Tim Lawless.

He believes the RBA board will have to raise the official cash rate in coming months.

“If value growth continues along the current trajectory through I think the Reserve Bank will be forced to take action to quell the level of exuberance via higher interest rates.”

This view is shared by Digital Financial Analytics principal Martin North who thinks the RBA is “stuck in the middle”.

“To get good growth we need business investment to flourish. Inflating house prices is not a substitute. To ease the over-stoked property market we need rates up at least 1% – despite the damage to householders who took maximum mortgages out when rates were rock bottom,” he said. 

“We are, as they say between a rock and a hard place. Time for some action, not sitting on hands.”

And this may be a Sign for investors not to sit on their hands either!  They can use this time left with rates low and stable to release the equity in their investment properties.  They can then Fix these loans with fixed rates historically low (and lower than the variable rates) guaranteeing a good & peaceful cashflow for the next 2 to 3 years.. Time for the market to substantially lift.

 

 

 

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