Steady rates to bring confidence back to property market

By Your Mortgage

The Reserve Bank of Australia's decision to keep interest rates on hold is expected to boost confidence among property buyers, many of whom are still reeling from increases in February and March, as well as the additional increases imposed by some lenders according to an industry body.

Noel Dyett, president, Real Estate Institute of Australia, said the RBA decision is sound given the shifting mood in the housing market. "While the full impact of the previous rises will not be clear until March and June quarter data are available, anecdotal evidence from REIA members suggests that the housing market is cooling in cities which had seen a considerable increase in activity in the latter half of 2007," he said. "The RBA has made the right decision to stop now, before too much pain is caused."

Dyett added that while some sectors of the economy are doing well, middle Australians continue to struggle with increasing mortgage repayments as a result of previous interest rate rises.

"The hold on interest rates will provide some assurance to current home owners, potential first homebuyers and investors, as they make decisions to proceed with a property purchase. Renters will also be happy with today's announcement. Interest rate rises put upward pressure on rents, because of increased costs to lessors, and also because investors are less likely to borrow to buy residential property. With vacancy rates at a historically tight level, Australia needs more, not fewer, residential property investors," said Dyett.

The RBA said in a statement that the result of the recent monetary policy decisions and the independent interest rate rises among banks as well as the overall tightening in financial conditions since the middle of 2007 has been "substantial".

While the RBA warned that the danger of higher inflation remains in the short term, and will probably rise further in year-ended terms in the March quarter, it noted that "inflation should decline over time, provided demand slows as expected".