Interest rates on hold

Date released: 02/02/2010

Interest rates on hold –  status quo remains!
RPdata.com comments from Cameron Kusher – Snr Research Analyst:

With the announcement today that the cash rate would remain unchanged clearly the RBA wants to wait and take stock of the full impact of the three rate rises prior to Christmas.  

Fundamentally, the property market continues to be in a healthy state with relatively low interest rates coupled with high levels of consumer confidence and strong population growth.  Despite the strong levels of population growth the market continues to see low levels of new dwelling commencements whilst the market has also seen strong growth in property values through 2009.  

The RP Data-Rismark National Home Value Results for December 2009 showed that during the month property values actually fell by -0.3 per cent in Australian capital city markets.  Certainly seasonal factors influenced these results however, three consecutive 25 basis point increases to the cash rate are also anticipated to have been a major contributor to the slowdown during the final month of the year as new data becomes available during 2010 it will be interesting to see if the three cash rate rises to-date continue to dampen property value growth.

Moving forward,   expectations for the futures market show that the cash rate will sit at 4.7 per cent by the end of 2010.  The higher cost of servicing home loan finance and the removal of the First Home Owner’s Grant Boost is anticipated to result in more subdued rates of property value growth during 2010 as fewer buyers are in a position to enter the market, in particular First Home Buyers.

The First Home Buyers Grant Boost which ran in full from the middle of October 2008 to the end of September 2009, saw 185,546 first home buyers commit to finance to purchase a home between October 2008 and September 2009. During the previous 12 month period only 123,513 First Home Buyer finance commitments were made which historically has been a more ‘normal’ level of activity.  We would anticipate first home buyer activity will return to a more normal level during 2010 thanks to increasing interest rates and a removal of the Boost.

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