Home buyers embrace RBA’s decision to keep cash rate on hold

It seems that home buyer confidence is slowly making a recovery, largely due to the RBA’s decision to keep interest rates on hold for the time being, with housing finance approvals rising between July and August by a seasonally adjusted 1.0%.

This is the second rise in a row recorded by the Australian Bureau of Statistics, with an increase for July of 1.8%. First home buyers accounted for just 15.5% of all housing finance (half the number from a year ago when property was booming), and established property held more favour with purchasers – approvals for established homes increased by 1.4% while finance for new builds declined by 1%.

In an article published in The Australian, economist with JP Morgan Helen Kevans said, “We suspect that the number of home loan commitments will continue to rise until the RBA delivers further policy tightening.”

This is likely to come sooner rather than later according to economists, who expect that strong job creation figures and concerns over capacity constraints and inflation will force the RBA’s hand before the end of the year.

A slowdown in lending and the recent slight downward adjustment in house prices were contributing factors when it came to the RBA’s October decision to keep the cash rate on hold at 4.5%.

But the central bank continues to caution borrowers over the inevitably of an increase in interest rates due to stronger economic growth.

Such a move is likely to once again put a dampener on housing loan approval rates, with Citigroup economist Josh Williamson considering lowering his predictions for total new finance commitments in 2010-11 from his current estimate of 167,000 new dwelling starts.

And what of investors? According to the ABS, many continue to sit on their hands with investor finance falling in June, July and August; a decline in activity that head of fixed income research at Deutsch Bank, Adam Boynton says the RBA will consider welcome news.

“Rising investor activity on previous occasions has been a cause for some concern for the RBA,” he said.

In fact the consecutive interest rate hikes we experienced at the beginning of this year were partly designed to prevent a swift rise in house prices caused by renewed property speculation.


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