RBA notes 'subdued' housing market

The “subdued” state of the housing market has been noted again by the Reserve Bank board following the release of the minutes of its October Monetary Policy Meeting.

In its examination of local factors shaping the economy, the RBA board notes that housing prices had fallen by 3% over the year to August while the national rental vacancy rate as measured by the Real Estate Institute of Australia had “edged up in the June quarter, with increases in all cities except Perth, although the national vacancy rate remained below the long-term average rate”.

Weaknesses in the Melbourne residential market received particularly attention, with the board noting an increase in the vacancy rate “where there had been strong growth in apartment building and a slowing in population growth, in part because of falls in the number of foreign students”.

In addition, the RBA says growth in housing credit remained subdued, with annualised growth of about 5% in the three months to August.

In the September Monetary Policy Meeting, the RBA board also noted the “weak state” of the local housing market, suggesting it will play more of a role in determining future interest rate policy.

Looking beyond housing, the RBA board says the inflation outlook “appeared less concerning than was the case a few months ago”.

“The inflation outlook would be reviewed after receipt of the next round of data on prices ahead of the November meeting,” it says.

"The extreme volatility observed in financial markets in August continued through September, with large swings occurring in share prices, exchange rates and bond yields. Members note that Europe remains the main focus, reflecting market concerns about the possibility of a Greek default as well as the stability of the European banking system. These concerns had been accentuated by broader worries about the global economic outlook."

The board noted once again the complexity in trying to assess the strength of the overall economy as “economic conditions continued to vary significantly across sectors”.

“Private demand was continuing to grow at a slightly above-trend pace owing to strong investment in the resources sector. This was being partly offset by weak growth in public demand as the fiscal stimulus was being unwound, and by strong growth in imports, particularly of capital goods. GDP outcomes continued to be affected by the disruption to coal production caused by the floods at the beginning of the year, with a full recovery still not expected until early 2012,” the board says.

It also noted modest growth in household spending while growth in spending on services had been strong.

Retailing remains a concern: “The Bank's liaison with retailers suggested there was a fall in spending in early August because of the market turmoil, with this fall reversed in late August and into September. Overall, retailers continued to report subdued conditions. Consumer confidence remained low, although part of the large decline in July and August had been reversed in September.

“Indicators of business conditions had been mixed. In the mining sector, the pipeline of investment remained very strong, with another large project (the $29 billion Wheatstone LNG project) receiving final investment approval during September. This brought the value of LNG projects announced so far in 2011 to around $70 billion. More broadly, the NAB measure of current business conditions declined in August to be a little below its long-run average level. Conditions remained weak in the manufacturing, construction, wholesale and retail sectors, but stronger in the mining, transport, and recreation and personal services sectors. As had been the case elsewhere around the world, business confidence had fallen noticeably and growth in business credit remained weak.”