The housing market continues to grow
The Reserve Bank of Australia (RBA) decided to keep interest rates on hold at its March meeting, with the cash rate remaining at a record low 2.25%.
Some economists had tipped the RBA to make a consecutive rate cut with news of a slowing Chinese economy, higher unemployment and weakening job growth however RBA Governor Glenn Stevens said it was "appropriate to hold interest rates steady for the time being".
Given that the majority of Australian's have variable home loans, the market is highly responsive to interest rate decisions so, what impacts are we seeing?
Following the February rate cut Loan Market has seen home loan enquiries grow indicating that the cut is encouraging more people into the housing market and also prompting current homeowners to look for a better deal.
Auction clearance rates are also on the rise since the cut with CoreLogic RP Data reporting that the last three weeks of February (including March 1) saw the combined capital city clearance rate move above 70%, with the last two weeks recording a clearance of 77%. These levels of auction clearance rates haven't been seen since 2009.
The latest CoreLogic RP Data Home Value Index reports that home values also continued to grow over the month of February with a 0.3% gain over the month. This takes combined capital city dwelling value growth to 2.5% over the rolling quarter and 8.3% higher over the twelve months to the end of February.
February's month-on-month growth is moderate however compared to January and December growth. It's surprised many following the interest rate cut however lower rates generally require longer to flow through to increased capital gain.
While the March cash rate was held steady, competition in the housing market is expected to continue, particularly in Sydney and Melbourne, with buyers competing for limited stock and interest rates expected to remain low for some time. The majority of economists are also expecting a further rate cut before mid-year.
We can expect this increasing pressure on housing prices to keep pressure on the Australian Prudential Regulation Authority (APRA) to look at macro prudential measures to slow the availability of finance.
Current homeowners should use this time to make the most of the low interest rates and reduce their loan principal. During the life of a loan, our clients will experience ups and downs in interest rate cycles. While interest rates are at an all time low, it's important to ensure they've still got a home loan that's working for them and ideal to keep repayments at a higher level to ultimately own their own home sooner.