Today at its monthly meeting, the RBA Board decided to lower the cash rate by 25 basis points to 1.50 per cent, effective 3 August 2016
A slowdown in dwelling value growth may have made it easier for the RBA to cut the cash rate for the second time this year, however the primary reason for rates moving lower was likely to be the low inflation reading over the June quarter and the stubborn strength of the Aussie dollar. CoreLogic’s hedonic home value index reported a 6.1% annual rise in capital city dwelling values over the year ending July, which is the lowest rate of annual growth since September 2013 and substantially lower than a year ago when dwelling values were rising at almost double the pace. The annual trend of growth in Sydney has more than halved over the past 12 months, falling from 18.4% in July last year to 9.1% over the past twelve months. Presuming the cash rate cut is passed on to mortgage rates, there is likely to be a renewed level of scrutiny on the housing market, with policy makers wary of a reversal in the slowing housing market growth trend. A resurgence of growth could trigger a new round of regulation from APRA aimed at limiting growth in investment lending and/or tightening loan to valuation ratio requirements for lenders. The latest interest decision is likely to keep a base level of demand across the housing market, however other factors such as affordability constraints, higher supply levels, tighter lending conditions and weak rental markets are likely to see growth conditions continue moderating back to more sustainable levels.