At its meeting today, the RBA held the cash rate target at 0.1%, marking 14 consecutive months of the record low cash rate target setting. The RBA left other monetary policy settings unchanged for now, following last month’s decision to discontinue the yield targeting on the April 2024 Australian government bond. 

While the cash rate target has been held steady, there are clear signs of easing across housing finance and housing value growth.

The steady cash rate target follows a 1.3% rise in Australian home values in November. This monthly movement in property values is relatively high compared to the decade average of 0.4%. However, as highlighted by Governor Lowe in today’s statement, the rate of growth in the housing market has eased, with monthly growth rates slowing from the recent peak of 2.8% in March 2021. 

The value of housing loan commitments has also declined in recent months, with ABS data showing a -2.5% decline in the value of new lending for the purchase of property in October.

APRA data out today showed some uptick in potentially risky lending in the September quarter (before the announced changes to serviceability assessment by the regulator in October). The September quarter data revealed almost 24% of new mortgage lending was at a debt-to-income ratio of six or more. As a result, a slowing in new housing lending through October, and a decline in housing value growth rates through to November may be welcome news. In today’s RBA statement, the importance of sound lending standards and adequate buffers for borrowers was also reiterated. 

Average new mortgage rates also appear to have bottomed out in recent months, with a rise across fixed mortgage rate products. RBA lending rate data showed average new owner-occupier loans have been steady at 2.37% for the three months to October, having previously shown consistent declines since mid-2019. For new owner occupier loans, average fixed rates (where the fixed term is less than or equal to three years) rose to 2.0% through October, up from a recent low of 1.95% in May 2021.

The RBA reiterated its messaging that core inflation would need to sit sustainably between 2% and 3% per cent before they would increase the cash rate, with expectations that inflation would hit 2.5% through 2023. Amid a steady cash rate target, rising affordability constraints, and regulators keeping a close eye on lending standards, housing value growth is expected to continue slowing into 2022.