Reserve Bank Exposes Four Biggest Housing Risk In Australia

The Reserve Bank listed Australia’s biggest housing risk, according to The New Daily. These include price growth, apartment oversupply, low rents, and landlord resurgence. The bank’s warning came after the central bank kept interest rates unchanged at 1.5%, the lowest rate ever. The central bank’s decision was expected by the majority of markets and industry observers.

Business Insider reported that the Reserve Bank of Australia did not provide any indication that a future interest rate hike is looming after the release of its latest monetary policy statement. The bank also explained that the Board believed that its decision was in line with the bank’s goals, which was to make sure that country hits the targeted 3% economic growth rate over the coming years. Their stance was based on certain expectations related to an increase in resource export and the marginal effect of the slowdown in mining and non-mining investments.

A few observers also believed that the rate cut would have helped in boosting Australia’s economy especially since the nation has failed to hit the growth rate target of 2%-3% successively over the past three years. If that was the case, why then did the central bank keep the rates unchanged. According to certain experts, the central bank made that decision because the property market is still hot as ever.

The Governor of the Reserve Bank of Australia explained the condition of today’s property market. Lowe said the prices of houses in certain parts of the country were increasing “briskly.” For instance, Sydney’s housing costs soared by 16% according to the data provided by CoreLogic for Jan. 2016 until Jan. 2017. Meanwhile, Canberra’s price growth was pegged at 6.7%, Adelaide at 4.8%, and Brisbane at 4.4%. Prices in Melbourne and Hobart grew by 11.8% and 7.8%, respectively. On the other hand, other places have seen a decline in house prices. The drop was prevalent in Darwin and Perth. They were both in negative territories, at -0.7% and -3.2%, respectively. Other capitals that were not mentioned here had an overall price growth of 10.7%.

It will be harder for first-time buyers to save up for a home located in metropolitan areas because of this kind of price growth. According to CoreLogic, a two-income household must have enough money to cover the deposit. They must also be financially prepared to pay as much as $850,000 or $640,000 if they want to buy a home in Sydney or Melbourne, respectively. Figures that were obtained in 2013 revealed that couples only had to save $87,000 for the deposit needed for a home loan. This amount has increased to $103,000 these days. RBA boss Philip Lowe also talked about investor resurgence. He said investors flocked Australia’s real estate sector in droves after the central bank slashed the interest rates twice last year. The resurgence led to an increase in investor loans, which has reached a record-high of 54.7% in May 2015. He added that Australia may also encounter problems related to an apartment oversupply and low rental yields.