RBA July 2020 Decision - Interest Rates Maintained

Interest rates in Australia have been maintained at 0.25%. The Reserve Bank stated:

At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points.

They go on to illustrate the difficult time the economy has been going through:

The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. Since March, an unprecedented 800,000 people have lost their jobs, with many others retaining their job only because of government and other support programs.

They say their actions are helping:

The substantial, coordinated and unprecedented easing of fiscal and monetary policy in Australia is helping the economy through this difficult period. It is likely that fiscal and monetary support will be required for some time.

And allude that they aren’t increasing rates anytime soon.

The Board is committed to do what it can to support jobs, incomes and businesses and to make sure that Australia is well placed for the recovery. Its actions are keeping funding costs low and supporting the supply of credit to households and businesses. This accommodative approach will be maintained as long as it is required. The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.

There’s no mention about lowering rates and it’s unlikely they’ll do so based on their past signals.

Interest rates aren’t expected to rise anytime soon

Lucy Dean writes for Yahoo Finance in “When will interest rates start to rise again?”:

According to Deloitte Access Economics partner Chris Richardson, mortgage-holders have a while until they need to worry about rising rates. 

“Globally and locally, interest rates will be nailed to the floor for years,” he said in Deloitte Access Economics’ quarterly business outlook report. 

More agreement follows:

AMP Capital chief economist Shane Oliver said rates will stay on hold for “at least” another three years, while ABC Bullion’s Nicholas Frappell said Australians shouldn’t expect an increase until at least 2022. 

The article then has a big section on how “many Australians aren’t taking full advantage” of the low interest rates. It’s only to be expected as most of us have other things on our minds right now. Mortgage repayments are a huge bill though and it’s definitely a good time to take a look around the market.

Steve Mickenbecker, Canstar’s finance expert said:

“If you know your home loan interest rate is too high, now is the time to put the knowledge into action. We’ve never seen a home loan market like we have now where lenders are so keen to undercut their competitors’ rates.”

I couldn’t agree more. Banks are competing hard amongst themselves right now. The easiest way to figure out if you can do better is to get in touch.

National Auction Results June 2020

Auction results generally give us an idea of whether the property market is strong or weak. It’s good to see that the auction clearance rates are doing well now that bans on auctions and inspections have been lifted. There’s definite interest from buyers.

The following auction results around Australia were initially reported by Domain on 27th of June and updated on the 29th.

Sydney 65%

Melbourne 60%

Adelaide 72%

Brisbane 52%

Canberra 89%

As 36 suburbs in 10 postcodes in Melbourne go back into lockdown due to the recent uptick in cases, I’d expect some impact on Melbourne results for July.

How the pillars of the property market are faring

Interesting take by Cameron Kusher for Realestate.com about the foundations of our property market in “A look at what supports the Australian property market amid fears of a collapse”.

1. Employment

New figures from the Australian Bureau of Statistics revealed Australia’s unemployment rate jumped to 7.1% in May from 6.4% in April – its highest level since October 2001.

The JobKeeper wage subsidy is likely contributing to lower participation rates but with the scheme set to expire in three months’ time, unemployment could soon shift higher as people start looking for work again.

2. Population growth

The population increased by 349,833 people in 2019 – its smallest annual increase since the 12 months to December 2015 and its slowest rate of growth since June 2006.

With international borders now closed due to COVID-19, population growth will likely be hampered even further, which will likely lead to reduced overall housing demand in the coming months.

3. Consumer confidence

Consumer confidence fell dramatically as Australia entered COVID-19 lockdowns, but according to the ANZ-Roy Morgan Weekly Consumer Confidence Index, confidence has rebounded significantly since the introduction of the JobKeeper program and mortgage repayment holidays from the banks – now sitting slightly lower than it was before COVID-19 lockdowns began.

This marks a rapid recovery in consumer confidence, especially when you consider how quickly the virus was spreading as the country entered lockdowns.

HomeBuilder is off to the races

An interesting data point from Eliza Borrello for ABC News in “Can HomeBuilder be used as a deposit? Questions leave prospective house buyers confused”. After less than a week since HomeBuilder was announced:

… more than 208,000 people had visited the Federal Government's HomeBuilder webpage and more than 15,600 Australians had registered an interest.

It’s off to a good start as the government had expected 27,000 Australians to apply for it.

There’s also a bit of useful information addressing whether the $25,000 HomeBuilder grant can go on a deposit:

NAB:

The ABC understands NAB customers will be able to put HomeBuilder grants towards a deposit, but the total deposit required will not change.

ANZ:

An ANZ spokesman said the $25,000 could be used as part of the equity a customer contributed to building costs, as long as a loan was not subject to lenders mortgage insurance (LMI).

LMI is insurance borrowers have to take out if they have not saved a 20 per cent deposit for their home.

CBA and Westpac didn’t respond with clear guidance. So right now, the quick answer is that it depends on the lender with many still figuring out how to work it into their lending criteria.