Reserve Bank Lists Biggest Housing Risks Facing Australia

The Reserve Bank highlighted four of the biggest housing risks that face Australians after the RBA left its official cash rate unchanged at a record low of 1.5%. These risks were rampant price growth, a looming apartment glut, low rents, and landlord resurgence, according to The New Daily.

Keeping the rate unchanged was widely expected by markets and numerous industry experts, according to Business Insider. In its monetary policy statement, the Reserve Bank of Australia left no sign that would indicate a probable interest rate hike in the future. It also said that its Board believed that their decision was in line with their goal, which is to maintain a sustainable economic growth and achieve the inflation target. The central bank was firm in its forecast that the country’s economic growth would be around 3% in the coming years. This belief was based on certain expectations like an increase in resource exports, less drag from the plunging mining and non-mining investments.

The bank failed to reach its 2%-3% target for nearly three years and cutting rates further could have helped in stimulating the economy. The question now is why did the central bank decide to hold the rate? Several industry experts believe that it was restrained from doing so due to the hot property market.

The Governor of the Reserve Bank of Australia, Philip Lowe, discussed a few points regarding the current conditions of the property market. First, he noted that “prices are rising briskly in certain parts of the country.” He said this situation is prevalent in certain markets but, declining in others. In the data presented by CoreLogic from Jan. 2016 to Jan 2017, Sydney’s house price growth was at 16%. Melbourne was pegged at 11.8%, Hobart at 7.8%, Canberra at 6.7%, Adelaide at 4.8%, and Brisbane at 4.4%. On the other hand, Darwin’s house price growth is within the negative territory, at -0.7%, Perth at -3.2%, and other combined capitals at +10.7%.

The numbers meant that the “brisk” price growth is making it harder for first-time buyers to save for a home loan in capital cities where the best jobs are commonly located. According to CoreLogic, a two-income household would need to save a lot of money because the deposit for home median-priced houses in Sydney and Melbourne are currently at an all-time high, $850,000 and $640,000, respectively.

Bank West said a couple with average jobs needs to save as much as $103,600 to qualify for a loan for a median-priced home in a capital city, a figure that is far higher than $87,600 way back in 2013. In addition to this ever-increasing amount required for deposits and the median-prices of houses in capital cities, Lowe also pinpointed the investor resurgence in the market. He said investors have flocked the market once more after RBA’s cut the interest rates twice last year. He said loans to investors have reached nearly an all-time high 54.7% in May 2015. Lowe also emphasized the probable dangers that the market faces including an apartment oversupply and low rental yields.