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Ben Kingsley Blog post by Ben Kingsley

RBA Rate Decision – August 2014

The Reserve Bank of Australia (RBA) today kept interest rates on hold for another month and that’s twelve months now since the RBA last reduced interest rates which they did by 25 basis points.

So the cash rate as of today stands at 2.5 which is still at record low levels. Now what’s happening in the economy at the moment is there’s not a lot a data over the last month that we are seeing but we are going to see some some fresh data coming out in regards to the June quarter over the course of the next couple months. We are seeing commentaries around employment jobs (employment rate) holding. We are definitely seeing some strong infrastructure being undertaken in the New South Wales (NSW) economy and that’s gonna flow through in their numbers. So, we expect the NSW economy to be very strong over the course of the next couple years. And again, we’re also seeing that construction-related recovery trying to take shape.

So overall, I’m really comfortable where interest rates are the moment and I wanted to spend some time in talking to you about the housing bubble.

The conversation it’s now starting to come up. We have seen that house prices across the country are pretty much at record levels but let’s not lose sight out what that means. That’s a broad statement. When we actually drill down to some of the different state levels, we aren’t actually seeing records sale prices. We’re certainly seeing them in the NSW and Victoria. In the Melbourne and Sydney markets have had really really strong growth. When we’re talking about the Brisbane market we’re starting to see some momentum in the Brisbane market and that’s obviously why we’re buying properties in Brisbane at the moment as well.

When we go to some of the other markets we’re seeing some signs on green shoots of growth in the Adelaide market and we’re also seeing something happening in it as the Tassie market as well. As for the Perth market, well again they seems to be actually slowing down a little bit. We’re seeing some mining consolidation and the certain job growth that we saw over that particular market over the longer term is now starting to soften off a bit so we may see a plateauing of opportunity in the Perth market. In saying that, as I’ve always said before, there is opportunity in some sub-markets in that area so I wouldn’t sat don’t buy in Perth but certainly from a general perspective we’re not seeing that sort of general buy for the Perth region. Darwin is the same. We’ve had some big infrastructure projects and we’re coming off the the peak of those and we’re now starting to see the job market and certainly the rental market start to settle down a little bit as new supply comes on as well. So those particular areas across the country overall, the commentary is quite bright and vigorous and that’s because of these low interest rates meaning borrowing power is actually quite strong.

So that’s the message. We are not in a housing bubble yet.

The RBA are very very clear in regards to if they do see some signs of some aggressive growth in that particular market, they will do everything in their power to change that. And they don’t necessarily have to do that by changing the cash rate. We’ve seen in New Zealand, what actually happened over there is they introduced some peaks in terms of loan to value ratio.

So they’ve put some parameters around the lending conditions because that is what’s driving value growth for the moment. We’re seeing lending conditions being fairly reasonably in the Australian market. So if they wanted to change that without actually affecting the broader economy, they would actually change LVR levels for what people can buy. So they do have some other strings in their bow to help them out and that’s going to obviously mean that the economy can continue to keep building up momentum in getting our GDP numbers back where they should be which is around that sort of two to three percent growth.

Thanks for your time.

 

(Those people watching/reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decision about financial matters without seeking further clarification and understanding of your own personal circumstances. This article is not advice you should rely upon. I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)

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