Guest Blogger, Mr David Airey, President of the Real Estate Institute of Australia and long term aussiehome.com client writes...
The Reserve Bank decision to leave interest rates unchanged today following three consecutive increases is GREAT NEWS for home owners. It's good to see that the RBA are listening to the markets and taking note of the downturn in lending.
The Real Estate Institute of Australia ("REIA") was critical of the RBA decision in December to lift official interest rates for the third time and are pleased to see them now taking a cautious approach.
REIA noted that increased interest rates reflects an improving economy, however another rate rise would have DAMPENED THE MARKET AND THREATENED CONSUMER AND BUSINESS RECOVERY. Four rate rises in as many months would have been too much too soon, especially since we do not yet have the full picture on December quarter economic activity or property sales. The reality of the market is that housing lending has dropped along with business loans and a month with no change is definitely what was needed.
Even more pleasing was to see all the economists and financial writers having to redo their prepared scripts on a rise in rates and the disappointment across their economic faces. I've been critical of those financial writers who actively encourage rate rises and fuel the focus on "price bubbles" and "inflation". I'm not (thank goodness) an economist. I'm a realistic and practical person who not only works at the coal face but I see and speak to estate agents and Australian home owners on a daily basis. I hear them telling me about the subdued market and reduced activity since the 3rd rate rise in December. And I'm starting to hear from an increasing number of first home buyers who are already struggling to meet increased payments.
The reality of the 3 rises plus the extra .25% that the banks added has resulted in an average 1% rise in rates since October. The average variable is around 6.5% still higher than many other countries and business rates – wow! Add 2 or 3 per cent.
What concerns me is the doom sayers who reckon that rates are artificially low. So what? Why do they need to be high? What's wrong with a booming economy and growth and a strong property market and full employment? Maybe these are the reasons I never made it through economics.
Other commentators such as Marcus Padley are worth quoting:
The RBA have surprisingly left rates unchanged at their meeting today.
Main reasons appear to be that:
· Credit conditions are still "difficult" with businesses still struggling to find credit.
· Global economic recovery is only "modest".
· Inflation is not a problem.
· Commercial banks have lifted rates more than official rates ... doing the work for the RBA.
· The Chinese are tightening policy.
· They have yet to see the impact of recent rate rises kick in.
· Rates are on hold globally.
They do hint that they will raise rates in the future to ensure inflation is kept under wraps.
The suggestion already is that they are moving to a more cautionary stance and may well keep rates on hold now until proven necessary to raise them.
We may see rates on hold for some months. There is also concern that they have got the wobbles about sustained economic growth this year with China tightening a threat to Australian economic growth.
[ Credit for article: DavidAirey.com.au blog]