Property Investment - October 2009

The Reserve Bank of Australia released the minutes of their October board meeting earlier this week, providing an insight into the deliberations behind the recent decision to lift the official cash rate from 3.0 percent to 3.25 percent. The minutes provide a valuable insight into how the Reserve Bank Board views the domestic and global economic conditions and how their views translate into changes in Australia’s monetary policy. The minutes highlight the improved economic prospects of major regions around the world with particular attention given to the improved outlook for our major Asian trading partners.

Summing up the domestic economy, the RBA minutes state “Growth forecasts were tending to be revised up. Measures of both household and business confidence had recovered, household spending had remained relatively resilient, house-building activity was in the process of picking up and the risks of a sharp contraction in business investment had receded noticeably.” The RBA minutes also made specific reference to the Australian housing market, referencing the August results of the RP Data-Rismark Home Value Index with housing values up 2 percent over the month. Additionally, the minutes clearly suggest there is some growing concern amongst the RBA board about the medium term outlook for inflation, with the board suggesting inflation could start rising again in 2011.

In balance, the board minutes reveal there is still some caution about the durability of the recovery, particularly as domestic stimulus measures are wound back. The economic prospects of the major economies around the world, although mostly improving, are still uncertain.

The final decision to lift the cash rate by 25 basis points was based on the risk of another downturn being relatively minimal compared to the improvements in the health of both the domestic and global economies: “Overall, members concluded that, while downside risks to the domestic economy could not be ruled out, they had diminished significantly over recent months. This meant that the balance of risks was now such that the current very expansionary setting of policy was no longer necessary, and possibly imprudent.”

Over the last year every capital around Australia has recorded an improvement in housing values with the largest increases being in the cities of Darwin (houses +27 percent and units +15 percent) and Melbourne (houses +8.9 percent and units +11.2 percent).

Brisbane, Adelaide and Perth remain the markets recording the most subdued levels of growth, however these markets have well and truly outperformed the national average over the longer term.

The total amount of stock advertised for sale has been falling consistently since peaking at 243,500 homes advertised for sale in October last year.Over the last month there were 204,546 homes advertised for sale – an overall stock reduction of 16 percent from the peak.