At its board meeting this month, the Reserve Bank of Australia (RBA) once again decided to keep the official cash rate on hold at 2.5 per cent. This is great news for both mortgage holders and property buyers, who are enjoying low interest rates and a competitive loan market as a result. The decision came as no surprise to market analysts, who expect the RBA to continue their policy of low interest rates for the remainder of 2014. In his statement after the meeting, RBA Governor Glenn Stevens confirmed these expectations by saying that "On present indications, the most prudent course is likely to be a period of stability in interest rates." The RBA policy of keeping interest rates at their lowest levels since the 1950s, is designed to reduce the value of the Australian dollar against other currencies to stimulate our economy through increased activity in exports and local property investment. Governor Stevens said "the decline in the exchange rate seen to date will assist in achieving balanced growth in the economy." Governor Stevens also said that "the Australian dollar remains high by historical standards." This could indicate that a further rate cut may be on the horizon later in the year – which would mean even more good news for mortgage holders and property buyers alike. Other factors which could influence the RBA to further cut interest rates are rising unemployment, weakening investment in the mining sector and the effect of the Government's upcoming budget cuts. According to the Australian Bureau of Statistics, the low interest rate environment has already had a very positive effect on all property markets, but particularly in new home constructions. Total national building approvals for January jumped 6.8 per cent to 17,514 dwellings, 35 per cent higher than this time last year. This is the biggest annual rise in construction approvals since 2002 and one of the strongest monthly gains on record since mid 1983. Approvals for private sector houses grew by 8.3 per cent in January, while approvals for apartments rose 4.6 per cent. The Housing Industry Association Summer Report indicated that housing starts increased by 11.7 per cent to 161,970 during 2012/13, following two consecutive years of decline. Activity is forecast to rise again in 2013/14 by 2.8 per cent, going on to reach over 170,000 by 2016/17. A rise in new housing construction is great for first home buyers and those looking to purchase. Rises in approvals are usually followed by a rise in availability, and this should help to keep housing price rises in check and in reach for those entering the property market for the first time. In 2013, strong demand for houses encouraged price rises around the country, with average home prices increasing nationally by 9.8 per cent last year. This trend was also reflected in a rise in unit prices. However, auction clearance rates in all capital cities have continued to remain above 70 per cent, which would indicate that despite the recovery in housing prices, property is still very affordable to the average purchaser and bargains are still available in most markets. With interest rates looking set to remain on hold at historically low levels for the remainder of the year, both mortgage holders and property buyers can look forward to a very competitive loan market, with plenty of opportunities to save. Conditions look positive for increased housing availability, which should keep home prices at affordable levels in 2014/15. Want to find out more about property market trends and low interest rates? Please give us a call. Sincerely, The TAG Team
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