Rates steady but signals remain mixed
• Stubborn unemployment and dollar
• Sydney and Melbourne housing markets strengthen for now
Interest rates have fallen by 1.75 percent since the current easing cycle began in November 2011. Although the Bank is currently engaging in a wait-and-see approach on the effect of its stimulatory monetary policy on economic activity, recent results have nonetheless been mixed.
Although the national unemployment rate fell from 5.7 percent to 5.6 percent over September this minimal improvement reflected falling workforce participation rather than jobs growth. Sydney’s unemployment rate at 5.7 percent is a full percent higher than recorded over September last year and the Melbourne September rate at 6.2 percent remains a concern.
September building approval data recorded a significant lift over the month but the increase primarily reflected a surge in unit approvals. New house activity overall remains disappointing given the degree of stimulus in the marketplace from low rates, increased activity generally by home buyers and various state government incentive schemes and policies designed to increase house construction.
The performance of local economies remains problematic and with growing concerns over the sustainability of a weak to date US economic recovery, the economic outlook remains problematic. The stubborn upward trajectory and level of the dollar and a relatively unenthusiastic sharemarket indicates that the current bias for interest rates remains downwards.
The prospect of rapid prices growth in local housing markets fuelled by low rates is waning with only Melbourne and Sydney reporting solid to strong prices growth and other markets relatively flat.
“The latest economic data continues to point to a stuttering, patchy economy and, although the Reserve Bank has decided to leave rates on hold again this month, a further cut in rates remains solidly in prospect particularly if the national unemployment rate pushes towards 6 percent”, says Dr Andrew Wilson Senior Economist for Australian Property Monitors.
“A continuing mixed national housing market performance is tempering concerns of an unsustainable prices outbreak in the shorter-term. Only Melbourne and Sydney are currently recording strong buyer activity and prices growth with these conditions expected to moderate over the next 6 months in the face of predicted declining economic activity”.