Amidst falling housing prices, low inflation and rising mortgage rates, the decision from the RBA to keep the cash rate on hold at a record low of 1.5% was widely expected; in fact financial markets aren’t expecting any move in the cash rate throughout 2019 and into 2020.
Despite the housing downturn gathering some pace in September, with CoreLogic’s national index recording the largest fall in dwelling values over any three month period since late 2011, we don’t expect the RBA to throw a lifeline to the housing market in the form of lower interest rates.
Considering dwelling values comprise around 55% of household wealth and about 70% of household debt, the RBA has a keen interest in the housing markets performance.
Cutting the cash rate would likely provide further support to economic conditions, but could also risk refuelling growth in housing prices, as was the case in 2016 when the cash rate was cut by 50 basis points between May and August.
Despite the recent subtle rise in mortgage rates, indebted home-owners continue to benefit from the lowest mortgage rates since the 1960s.
Although we expect housing values to drift lower, such low mortgage rates, together with population growth and relatively strong economic conditions should help to keep a floor under housing prices.