The longest period of interest rate stability on record has extended out another month, with the RBA keeping the cash rate on hold at 1.5% where it has remained since they cut the cash rate by 25 basis points in May and August of 2016.
Considering the diversity of economic conditions, the hold decision comes as no surprise. Labour markets are improving, but wages growth remains sluggish and inflation has softened.
It’s a bit harder to gauge the RBA’s view on housing market conditions, with the RBA continuing to call out weakening conditions in Sydney and Melbourne.
CoreLogic data to the end of November highlighted that the Sydney market has already recorded a 9.5% decline in values since peaking in July last year and will likely surpass the previous record peak to trough decline of 9.6% which was set during the last recession between 1989 and 1991.
Despite this weakness in the largest cites, dwelling values in Sydney remain 41% higher than they were five years ago and Melbourne values are still 38% higher both of which show five year growth rates well in excess of most other capital city markets.
Additionally, five of the eight capital cities have posted a capital gain over year to date however, from a macro view they have much less of an influence on the national figures than Sydney and Melbourne do.
To date we haven’t seen the housing downturn impacting on household consumption or saving, however this is likely to be a key factor the RBA will be monitoring.