The Reserve Bank of Australia announced that it will leave official interest rates on hold for the fifth month in a row when it met for its monthly meeting on the 5th August.
Persistent inflation pressures were cited as the main reason to leave rates unchanged, and resist the temptation to reduce them, as the RBA seeks to allow a natural slowing in the economy to continue to apply downward pressure on inflation.
There is a strong expectation that the RBA will seek to reduce rates as the economic indicators are showing that a slowing of growth and demand should be having the desired effect.
The property market in Australia has literally come to a stand still since the Reserve Bank last increased rates in March 2008 to the current official rate of 7.25%. The Australian Banks have also been opportunistic in rising their internal rates 0.6% this year citing the Global Credit crunch as a reason, despite global interest rates have reduced significantly in the same period.
The combination of Bank driven rates, and reluctance of the Reserve Bank to reduce rates has spooked Australian property buyers and investors into delaying their buy decisions and created one of the best Buyers Markets ever in Australian property history.
Increasing rents and reducing demand mean that the underlying market remains surprisingly strong and it is really a matter of loss of confidence rather than weakness in the asset class.
The continuing strong incoming migration supports the market, as many of the incoming migrants are cashed up and the interest rate level is not a factor due to low borrowing requirements.
Increasing media distortion has not helped the situation as those in lower income areas face the double pain of interest cost and uncertainty which is no doubt causing great anxiety for many Australian home owners.
With Oil prices beginning to retreat, we should see the inflation numbers come back into line with RBA expectations, allowing them to reduce rates in the near future and help those that need it most and restore confidence to the property market.
Until then, it is a buyers market and for the astute and brave, profit opportunity abounds if you can look past the fear mongers in the immediate future and ensure you seek out value acquisitions in quality property.
There will remain a medium to high level of risk in lower socio economic areas where mortgage ratio is high, but the upper end will rebound very quickly and has remained strong.
Rising rents, low vacancy, stagnant supply, increasing affluent populations, stable economy and the prospect of an interest rate reduction in the near future are all compelling reasons to look beyond the short term gloom.
Click here to view the official Reserve Bank Press Release
