The Reserve Bank held their August board meeting earlier this week, where the board decided to cut official interest rates to their lowest level in 53 years, 2.5%.
The statement following the board meeting noted that the global economy looks set to growing at a little below average this year with prospects for a pick-up in global growth next year.
‘Commodity prices have declined but, overall, remain at high levels by historical standards. Inflation has moderated over recent months in a number of countries.
In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment.
The unemployment rate has edged higher. Recent data confirm that inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate.
The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects can be expected over time.
The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.’
Based on this statement, the RBA seems to be comfortable with the current level of home value appreciation, inflation is well within their target range and we can expect interest rates to remain at long-term lows over the foreseeable future.
The Australian Bureau of Statistics (ABS) released housing finance data for June 2013 earlier this week. The data showed that the number of non-refinanced owner occupier finance commitments rose by 2.3% over the month and refinance commitments increased by 3.8%.
[sam id=34 codes=’true’]Over the past 12 months, the number of non-refinance commitments has increased by 14.9%, which is its highest annual increase since November 2009, and refinance commitments have increased by 8.4%.
The total value of finance commitments for investment purposes fell by -0.5% over the month however, investment loans have risen by 15.6% year-on-year Highlighting that this segment of the market is the primary driver of housing demand currently.
In comparison, the total value of owner occupier refinance commitments has increased by 13.4% year-on-year and non-refinance commitments to owner occupiers are 13.5% higher.
First home buyers continue to play a minimal role in the overall housing market. In June, there were 7,331 first home buyer finance commitments, down -10.0% from May and -12.9% lower than in June 2012.
As a proportion of all owner occupier finance commitments, first home buyers accounted for 15.1% of commitments in June. Across the individual states New South Wales (7.3% of owner occupier commitments), Queensland (11.6%) and Northern Territory (14.4%) are largely responsible for the slump in first home buyers.
The significant fall appears to be a response to the fact that the first home owners grant is now only available on brand new homes in New South Wales and Queensland and Victoria has recently followed suit with changes in that state effective from July 1st.
These figures will be reflected in next month’s housing finance data release. Given this, we anticipate that first home buyer activity may slump even further over the coming months, despite the low mortgage rate environment which should be attracting a greater number of first time buyers.
National Auction Clearance Rates
The weighted average auction clearance rate over the past week was recorded at 69.3%, up from 65.3% the previous week. The major auction markets of Melbourne and Sydney continued to record a strong rate of successful auctions.
Melbourne’s clearance rate over the week was 70.9% across 600 auctions, up from 68.7% across 637 auctions the previous week. In Sydney, auction clearance rates were recorded at 75.5% last week across 466 auctions, up from 77.3% the previous week across 469 auctions. RP Data is currently anticipating 1,273 capital city auctions over the current week.
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