You are using an older browser version. Please use a supported version for the best MSN experience.

Housing market in focus amid rate decision

AAP logoAAP 7/10/2016 Garry Shilson-Josling, Economist

Economists saw the week just gone as a Reserve Bank interest rate decision book-ended by data putting the decision into an economic context.

The week began with news from CoreLogic that the average capital city home price had risen in September, the ninth month in a row.

"Ongoing rising house prices continually raises the spectre of a housing price bubble, particularly in Sydney and Melbourne," St George Bank senior economist Hans Kunnen said.

He pointed to a range of possible triggers for a correction in home prices, including a large oversupply of housing, but said none were likely soon.

Ahead of the RBA's decision on Tuesday, the first under new governor Philip Lowe, Commonwealth Bank economist Kristina Clifton said building approvals data showed housing supply was rising, but still catching up after years of construction lagging behind population growth.

"Monetary policy is no doubt contributing to the long construction cycle as well," Ms Clifton said.

Also on Tuesday, ANZ released its monthly count of job ads, down slightly in September from August, even though the trend was still rising.

"The fall is consistent with some loss of momentum in labour markets this year, and more recently, in surveyed business conditions," ANZ's head of Australian economics Felicity Emmett said.

But the trend still pointed to ongoing moderate jobs growth, Ms Emmett said.

Amid these mixed signals, the RBA decision to leave the cash rate at its record low of 1.5 per cent was widely expected, but the announcement was keenly analysed.

St George Bank senior economist Janu Chan said inflation persistently under the two to three per cent target band would probably prompt more rate cuts.

"A pickup in inflation would likely require a further reduction in the unemployment rate, a pickup in wages and a sustained period of above trend economic growth," Ms Chan said.

AMP chief economist Shane Oliver said the RBA seemed to be growing more relaxed about housing price pressures, although it acknowledged strengthening in some markets, presumably Sydney and Melbourne.

"The RBA seems to remain comfortable in waiting for the surge in apartment supply to cool property prices," Dr Oliver said.

Altair chief economist Stephen Roberts said a key factor in home price rises, demand from Chinese buyers, was being threatened by controls imposed on outbound investment.

"Australia's over-extended housing boom may have been granted a stay of execution by continuing foreign investment, but even that force may soon face headwinds and most likely generated by authorities in China," Mr Roberts said.

Following the RBA decision, ABS retail trade figures showed a blip up in August.

But economists were unimpressed.

National Australia Bank economist Tapas Strickland said the trend in retail trade remained subdued, thanks in part to depressed prices and caution among consumers.

"It's likely headline retail sales will continue to be growing overall at moderate rates given the weakness that is occurring in the more mining-dominated states and the subdued price environment coming from heightened retail competition," Mr Strickland said.

image beaconimage beaconimage beacon