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No Surprises in Reserve’s decision

By Rebecca Zhang

After a robust start to the property year, experts say it is no surprise that the Reserve Bank kept the cash rate steady at 3 per cent.

Australian Property Monitors senior economist Andrew Wilson went further to say those waiting on further rate cuts this year might be disappointed.

“If the economy starts to move forward reasonably well this year, notwithstanding what happens in housing, I do think the potential direction for the next movement in interest rates is up,” he said.

“The evidence is certainly mounting that there has been a pick-up in the housing market.”

RP Data’s research director Tim Lawless also said the housing market had begun to respond to the cuts of 175 basis points during the past 16 months.

“It has taken the housing market longer than normal to respond to such low mortgage rates. However, it would be reasonable to assume that the RBA would be fairly comfortable with the housing market outcome to date,” he said.

APM figures show auction clearance rates in Sydney and Melbourne have returned to 2010 peak levels.

At the same time, property listings have increased, suggesting renewed seller confidence.

Despite the improvement, not everyone thinks the Reserve Bank has finished cutting rates.

Building approvals dropped by 2.4 per cent in January according to the latest Bureau of Statistics figures, leading Master Builders Australia’s chief economist Peter Jones to say that previous cuts had not done enough to boost new home building.

“With six cuts to interest rates in this easing cycle, the industry would have expected recovery to be much more advanced,” he said.

Housing Industry Australia chief economist Harley Dale agreed and said that even if “we do see a recovery in new housing starts in 2013, that recovery will fall well short of what the RBA is looking for”.

But Dr Wilson said it was geographical factors, not interest rates, that were preventing a revival in the home building industry.

“We could have interest rates at zero and we still wouldn’t be getting construction numbers that are required to meet rising demand,” he said.

“What is constraining housing construction is not affordability. It is issues to do with the fringe being too far out.”

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