Housing market weak but showing 'tentative signs' of pick-up: RBA August minutes

RBA board members noted that conditions in the housing market remain weak but were showing “tentative signs” of starting to pick, the release of minutes from the August 7 monetary policy meeting have revealed.

At the August 7 meeting, where the cash rate was left on hold at 3.5%, members noted that there were “tentative signs that housing market conditions and residential building activity were starting to pick up after being weak for some time”.

“Prices had increased a little in recent months, but remained somewhat lower than a year ago.

“Demand for housing finance was broadly unchanged over the year. With building approvals rising from low levels, the outlook for residential construction activity was more positive for the second half of the year. Earlier falls in interest rates and rising rental yields were likely to have increased the attractiveness of housing investment,” the minutes read.

Westpac chief economist Bill Evans says there were "little new insights" into monetary policy in the minutes but says there were some "tentative positive comments are made about housing market conditions and residential building market activity with prices increasing a little in recent months".

"Overall downside risks to the economy are firmly in the 'international' camp with Europe in the spotlight: 'the risk of significant economic and financial disruption in the euro area continued to cloud the outlook'," says Evans.

At the meeting, board members also noted that underlying inflation was at 2% for the year, “the lowest annual rate since the late 1990s” – providing scope for future interest rate cuts if the recovery in the housing market and other non-resource industries stalls.

“The inflation data for the June quarter were broadly in line with expectations, and confirmed that underlying inflation was around the bottom of the target," said the RBA.

The board also noted that the domestic economy appeared to be growing at around trend pace in the June quarter, “though activity continued to vary significantly across industries”

“Resource investment, which continued to evolve broadly in line with the Bank's forecasts, spurred activity in a number of industries, while the high Australian dollar and weak conditions in the housing market had weighed on activity in a number of non-resource industries.”

The performance of the global economy will impact on future interest rate decisions with the RBA board noting the global economic environment remained “fragile”.

“The latest forecasts for global growth had been revised down a little, reflecting further deterioration in Europe and slower growth in the United States and parts of Asia,” say the minutes.

The board concluded that “inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the Board judged that the stance of monetary policy remained appropriate”.