RBA pulling strings, record 🏠growth + low % rates - March 2021
In this month's update, our RBA pulls strings in the market, house price growth, loan approvals, clearance rates all soar, and low-interest rates here to stay.
RBA holding the forte:
The Reserve Bank of Australia (RBA) has made somewhat of a promise, they will intervene when needed and they want to see much stronger data on inflation, jobs and wages before interest rates can increase. Based on the outlook, “we do not expect it to be before 2024” is what the RBA Governer Philip Lowe said in his March 2021 statement.
On Monday 1 March, the RBA flexed its muscles, buying up more bonds to continue to maintain low interest rates. The RBA bought billions worth of bonds, to bring down yields after last week's spike caused concern for markets, home buyers and investors – a sigh of relief.
A quick rundown on Bonds, Yields + Interest rates:
When the RBA steps in to buy bonds with its quantitative easing program, it can help maintain low interest rates by keeping the yield lower. Basically put, a higher bond yield means potentially higher interest rates, this is what happened last week - bond yields spiked. If the yield starts to go up, it means the economy is doing well and expected to do potentially even better. If the RBA steps in to buy these bonds by throwing more cash into the system, it can influence this market and as a result, control future yields and therefore future interest rates. Bond prices and bond yields have an inverse relationship. So, when we hear of bond yields going up, we want the RBA to intervene and they did exactly that on Monday, targeting 3 and 5 year interest rates. Bond yields cooled as a result and the RBA showed us all that it’s really going to roll its sleeves up for our broader economy. Very low interest rates as a result look set to remain in place for a prolonged period of time with the RBA on our side and it's $100 billion program. Other advanced economies are doing similarly, as our RBA is doing for us here in Australia. (Click on the image below if you'd like to know more on this)
Housing - going berserk:
With these record low interest rates, home buyers are evidently super optimistic. According to the most recent figures by Corelogic, as shown below, Australian home values surged 2.1 per cent, at their fastest pace in almost 17 years in February. Low home loan rates being maintained by the RBA, government incentives, low supply and improved economic conditions are lead indicators for economists to believe this growth in the property market won’t slow down any time soon.
Tim Lawless, research director from Corelogic, emphasised that a national growth phase like this hasn’t happened since August 2003 and “the last time we saw a sustained period where every capital city and rest of state region was rising in value was mid-2009 to early 2010, as post-GFC stimulus fueled buyer demand.”
The data from Corelogic above shows that there were gains all over the country, Sydney and Hobart had the most in terms of gains, with each rising 2.5 per cent over the past month. Regional values in both NSW and Tasmania continue to surge, further evidencing that the population is moving away from the CBD as part of the COVID-19 shift - it's no longer a theory, it's actually been happening.
New home loan commitments and clearance rates up
According to data from the Australian Bureau of Statistics (ABS), new home loan commitments for owner occupiers increased by 10.9 per cent in January, up 52.3 per cent on the same period last year.
New investor home loan commitments, on the other hand, rose by 9.4 per cent, according to ABS, the largest ever increase since September 2016.
Clearance rates in Sydney haven’t dropped below 80 per cent all year, with the weekend just gone, up at 88 per cent. CoreLogic's Tim Lawless said “the mismatch between supply and demand is a central factor pushing prices higher” and evidently, keeping clearance rates high. Economists from CBA and NAB believe these high clearance rates and house price growth will continue into the rest of 2021 and 2022.
Tying it all together
If, as we believe, low rates do continue and the RBA stays true to its promise to keep rates low till 2024 or close to this date, then property prices will continue to rise. Economic conditions are looking stronger and the data is evidencing this. It is clear that the RBA’s policies and their intervention is working and we’re on track for more upside in house prices.
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