Mortgage Rates: On Hold!

The Reserve Bank left the official cash rate on hold for the tenth consecutive month on September 6, at 4.75 per cent. 

The RBA has not increased interest rates since November 2010 and does not look as if it has any intention in doing so in the short to medium term. In fact, Residex – Australia’s leading and original independent provider of high–quality data on the residential property market, believe that while the RBA remains in the ‘wait and see’ mode, there is potentially a slight bias that interest rates may be inclined to move down.  We have probably reached the top of this interest rate cycle and from here rates will be decreased. 

Residex CEO, John Edwards said, “We expect an adjustment to take place before the end of the year in the order of 0.5 per cent and the rate to remain at the reduced level for the following 12 months”.

“The RBA’s ‘wait and see’ attitude is a reasonable position to take at this point in time as there is no clear direction in the global economy and the Australian two-part economy is contradictory.” 

So, as interest rates remain on hold, what is happening in Australia’s residential property markets?

Australia as a whole suggests that there are further corrections to come. 

Mr. Edwards said, “[The graph] probably suggests that without any government stimulus, which we don’t expect, the correction process across Australia has around six to nine months to go.”

Mr. Edwards went on to state that market performances are not uniform and some areas are just starting the correction process while others have move beyond it and are presenting growth. 

Sydney is presenting growth and is the market with the most significant stock shortage. According to Residex, there is a shortage in the order of 20,000 dwellings. 

The worst performing capital city market is Brisbane.

“Brisbane’s annual growth rate has deteriorated further and has now recorded its worst annual growth rate on record at -6.0 per cent”, said Mr. Edwards.

 

Melbourne is currently presenting as if there is a serious risk of falls. The graph points to continued worsening adjustment for at least another six months, which Mr. Edwards said is likely to take the best part of two years as there is a significant stock overhang in the order of 20,000+ dwellings.

Mr. Edwards said, “The city is in the early stages of the correction phase and is a market where there needs to be caution. Many people will fail to realise that this market is correcting and will be focused on the recent quality returns.”

The corrections that have taken place in the Perth market are significant, with a reduction in median house values of 9.6 per cent, or $50,000, since March 2008. However, rental yields and weekly rental costs are increasing.

Mr. Edwards said, “The rental increases indicate that the surplus stock position in Perth, which is around 4,000 dwellings, is reducing. There are further corrections to take place however they are unlikely to exceed five per cent and before property values increase, we should also expect weekly rental yields to increase to the order of 4.9 per cent.”

Mr. Edwards predicts Brisbane and Perth should move to growth within the next six months, suggesting we are in a period where there will be bargains up for grabs in these markets, with these properties having sale prices below their intrinsic value. He also stated that Sydney, Brisbane and Perth can reasonably to expect weekly rental increases making these cities attractive for investment given a situation where any rise is likely to take place against a backdrop of decreasing interest rates. 

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