Consumer sentiment towards the housing market may be the biggest casualty from yesterday’s unexpected decision by the RBA to leave the cash rate on hold on Melbourne Cup Day.
However, its impact on the property market and prices is likely to be small with interest rates offered by lenders already very low (with fixed rates continuing to fall) and with housing data from both ABS and RP Data showing the housing market treading water at the moment with no major adjustment in prices despite rate cuts in May, June and October.
Over the three months to October, RP Data has capital city property prices down 0.6% while preliminary ABS September quarter figures have capital city house prices up a negligible 0.3%.
Sentiment about the housing market has been improving with the Westpac-Melbourne Institute Consumer House Price Expectations Index posting a solid gain in October, rising 9.1pts from 25.2 in July to 34.4 in October.
“The rise is not surprising given the further interest rate easing in October and evidence of a stabilisation in house prices nationally,” said Westpac senior economist Matthew Hassan.
Yesterday, following the release of the ABS housing data and just before the RBA announcement, Hassan said despite a "promising improvement" in auction clearance rates and sentiment readings in October, the expectation remained that “prices will tend to 'consolidate' near term before further rate cuts drive a clearer recovery mid to late next year”.
With most economists tipping another rate cut – possibly two – in the next few months, the decision by the RBA to hold back in November is likely to do no more than ruffle the feathers of some in property and mortgage lending circles, moderately disappoint borrowers and please savers.
Indeed, while activity has picked up some sectors of the housing market and there was a mini-four month rally in property prices (as recorded by RP Data) part of this could be attributed to the busier spring selling as to the lower interest rate settings.
Among those to slam was did slam the decision was Aussie Home Loans chairman John Symond who called it “very disappointing”.
Symond has been on a crusade against the RBA in recent months calling it “asleep at the wheel” and not reacting fast enough to changes in the economy.
“It’s very disappointing and a lost opportunity to help manufacturers and retailers in the lead-up to Christmas,” Symond in an interview on Channel 7's Sunrise this morning, though he made no reference to either the mortgage market or property prices.
However, he did make the point about the rate hold creating uncertainty in the minds of consumers.
“The decision will create more uncertainty as expectations were high for a rate cut.
“Confidence is everything - there is not much confidence out there."
Symond says a rate cut is needed in December but would not go so far as to say the RBA would do so.
“They don’t seem to be in sync with what is happening in the real economy. They are making some pretty odd decisions and overall it’s pretty disappointing,” he said.
Property market analyst Margaret Lomas tells Property Observer that while investors and home buyers may have been appreciative of a further cut, “we are already in an environment where rates are at a low which we have not seen for some time”.
She says the property market has already shown signs of movements, "albeit small ones, on the back of the prior interest rate cuts".
“The stimulus has occurred and affordability has returned to the market. Prepayments on mortgages are at an all- time high and many mortgage holders are feeling a security. I think that few were too disappointed in not seeing another cut and I doubt that this failure to drop rates will have too big an impact on the recovering market.
“I also believe that Australians are more informed and many understand the significant benefits which occur in our economy if the Reserve bank continues with careful measures. It’s important to keep rates at realistic levels, just as occurred during the GFC, to protect all Australians in these unstable world economic times,” says Lomas.