On April 7, 2016

Twelfth month of Reserve Bank stability comes around

There were no April Fools' jokes from the Reserve Bank of Australia (RBA) this month, as the board elected to keep the official cash rate steady at 2 per cent yet again. This marks the twelfth month in a row without a change to this important metric, and commentators have been quick to interpret how this will impact the investment property market, for better or worse.

While the cash rate no longer dictates exactly how interest rates are set by lenders (as evidenced in banks pushing up rates in late 2015), it is nonetheless a crucial part of the property market, influencing demand and thus price increases.

How has the cash rate announcement affected long term interest rate prospects?How has the cash rate announcement affected long term interest rate prospects?

Why the cash rate has stayed the same

One of the most important parts of the monthly RBA statement from Governor Glenn Stevens, for property investors at least, is the dissection of demand in the housing market. This time around, there was a clear indication of stable growth across many areas that were problematic throughout 2015.

"Low interest rates are supporting demand, while supervisory measures are working to emphasise prudent lending standards and so to contain risks in the housing market," Mr Stevens stated.

"Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers."

"Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers."

Looking at the RBA's latest aggregates for lending (February 2016), the value of lending owner-occupiers had increased from $984.1 billion to $991 billion. Meanwhile, lending for investment property increased only slightly from $548.5 billion to $545.8 billion over the course of the previous month.

While this initially seems a poor outlook for investment lending, it should be noted that the value of this type of credit actually dropped significantly in the back half of 2015. Therefore, even a marginal increase could be seen as the investment pendulum swinging back around.

How long will it last? 

With the prolonged period of stability in the cash rate comes the inevitable question of when the cash rate will rise again. This was tackled by John Cunningham from the Real Estate Institute of New South Wales, in his response to the RBA announcement. 

"It is important to take a long term approach to the property market"

"While we expect interest rates will remain steady in the coming months, it is important to take a long term approach to the property market and be aware that these record interest rates will inevitability come to an end," he commented. 

This is important advice for anyone looking at finding the right property. Even though the prospect of significant interest rate increases is not imminent, making the most of the current environment is a good way to secure a stable financial future for at least the next few years. 

Things to watch

While this is a long run for the cash rate, there have been some shifts in the economy which may impact the RBA's outlook heading through 2016. For example, Bloomberg reported that the Australian dollar is currently outperforming expectations, and if this continues it may mean the RBA has to make adjustments to the cash rate. 

Furthermore, Mr Stevens indicated that if the labour market does not continue tracking positively, an easing of the cash rate might be required to stimulate further investment and growth. These outcomes do not directly impact whether investors can afford property or not, but any cash rate change does open the door a little more for lenders to make adjustments. 

Regardless of how investors feel about the wider economic climate, finding the right time to invest is more a matter of making sure your own finances are in order. This take careful planning and the right property investment advice. No two people have the same finances and goals, which is why tailored and professional advice can prove extremely important. 

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