RBA notes ‘signs of stabilisation’ in house prices in some capital city markets

The Reserve Bank noted signs of stabilisation in house prices in some capital cities, but has left the door open to further rate cuts should global demand ease further, its February monetary policy statement has revealed.

“While housing prices had declined over 2011, there were signs of stabilisation in some major cities around the end of the year,” says the statement.

The central bank does name the major cities show signs of stabilisation.

However, it notes continued weak conditions in building construction and mortgage lending.

“Building construction activity remained subdued, reflecting the pull-forward from the earlier boost to grants to first home buyers, slower population growth, tight access to credit for developers and lowered expectations of capital gains. Housing credit continued to grow a little more slowly than household incomes,” says the RBA.

On the key measure of inflation, the RBA says underlying inflation is running at around 2.5%, “in the midpoint of the medium-term target range”.

“With growth expected to be close to trend and inflation consistent with the target, the board considered that this setting was appropriate for the overall macroeconomic outlook. They judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy,” the statement concludes. 

The statement notes that the two rate cuts in November and December had been “passed through to most lending rates in the economy, which were now around average levels”. 

While noting “significant differences in conditions across sectors” it says the outlook for GDP growth remains close to trend over the next couple of years. 

“The recent inflation data had confirmed that, in underlying terms, inflation was now at the midpoint of the target range. Inflation was expected to remain consistent with the target over the forecast period. 

“Credit growth remained modest, though there had been a slight increase in demand for credit by businesses, and housing prices had showed some stabilisation around the end of 2011, after having declined for most of the year. The exchange rate had risen since early December,” says the RBA. 

The RBA also reports an improving outlook for a still “fragile” Europe. 

“While the financial situation in Europe remained fragile, the likelihood of an extremely bad outcome seemed to have diminished somewhat over the previous couple of months, partly reflecting actions by the European policymakers. 

“This, together with stronger economic data from the United States, had provided a mild boost to confidence in financial markets. Growth in China had moderated as intended, but on most indicators had remained quite robust through the second half of 2011. 

“While there were still many uncertainties, the central forecast was for growth in the global economy in 2012 to be about 0.5% below trend. Australia's major trading partners were expected to continue to grow more quickly than the world as a whole.”