RBA Holds Fire and Notes Mixed Performance of Property Markets

Well, the Reserve Bank surprised markets today by holding interest rates steady. Moreover, it made clear in a statement that while Sydney’s market may be hot, property elsewhere isn’t so hot, with more varied performances in other cities in recent times.

We think today’s statement will put to rest talk of a national housing bubble. The RBA doesn’t appear to be too concerned about national house prices and it is looking at the market on a national basis. While house prices may be overvalued nationally to some degree, we aren’t seeing the sort of valuations that we saw back in 2003 that were way more inflated relative to incomes and GDP.

While the RBA sat still today, interest rates might still need to be cut later this year.

Sydney house prices are probably overvalued by about 25%, but this much less than the 55% premium that we saw back in 2003. Importantly, what is happening in Sydney isn’t happening elsewhere. In fact, we’ve got falling prices in Darwin, Perth and Canberra, and much more modest growth in house prices in Brisbane, Melbourne and Hobart. They aren’t doing much in Adelaide.

While the RBA sat still today, interest rates might still need to be cut later this year. But it’s not a done deal, as we clearly saw today. Low interest rates have fuelled other asset markets such as equities and commercial property, so this may put a break on downward moves. So to will rising interest rates in the US.

But then again, it all depends on the Australian dollar. The one thing the RBA clearly doesn’t like is the Australian dollar, which remains above “fundamental value”, much to its consternation. The Australian dollar has had a nice bounce today following a very solid appreciation against the euro and yen since the February rate cut. And it’s been steady against the US dollar. So the RBA’s focus will remain on our belligerent currency.

As for the property market, the commodities downturn is doing its work to cool property markets in the north and west.

Nationally, the number of unsold properties reached 351,843 in February 2015, rising modestly 0.1% from January, with the number of listings up 1.6% from a year earlier. While property listings were mostly steady over the month, in Perth and Darwin they were much higher from a year earlier, reflecting weakness in those property markets given the mining downturn.

Sydney recorded the largest monthly increase in stock levels, rising by 10.8% during February 2015 to 21,769 listings, as more vendors placed their houses on the market, looking to make a sale after the summer break. This is a normal rise for this time of year. It is notable that listings are still lower than where they were a year ago. So to in Melbourne and Hobart where listings are almost 10% lower from a year earlier.

Except for Sydney and parts of Melbourne, the housing market is largely in check.

However, we are seeing a very different picture in Darwin and Perth. The softness in those markets is expected to be ongoing given that the commodities downturn is depressing economic activity in Western Australia and the Northern Territory. Stock levels have jumped from a year earlier as vendors struggle to sell their properties for the prices they want.

Overall it goes to show there is no national housing bubble forming. Except for Sydney and parts of Melbourne, the housing market is largely in check.