Cash rate held, but interest rates not everything

Interest-rates-arent-the-only-measure-of-the-market_157_91144_0_14100825_300The official cash rate (OCR) has been held for a full year, with the Reserve Bank of Australia’s (RBA) decision on December 2 to keep it at 2.5 per cent for another month. This news will no doubt hearten home buyers around Australia, who are all but guaranteed to see interest stay at current lows until the next time the RBA board meets in February.

At the moment the duration of OCR stability is on track to reach a record length, having been held for 17 months, according to the Housing Industry Association (HIA). The longest length of stability in modern history was 19 months, set back in the mid-1990s, which current circumstances threaten to overtake.

“We would reach that milestone in March next year and today’s RBA statement strongly points toward that outcome,” commented HIA Chief Economist Harley Dale in a December 2 release.

The period of low interest rates has contributed to the affordability of housing for Australian home buyers in recent months. The proportion of income needed to keep up with mortgage repayments dropped 0.5 per cent over the September quarter, according to the latest Adelaide Bank/Real Estate Institute of Australia Housing Affordability Report.

However, Laing Simmons General Manager Leanne Pilkington cautioned recently that interest rates were only one of many factors that will shape the real estate market in 2015. Governments would have to act in a number of ways to keep this affordabilty trending down.

“[T]here is more that could be done at a legislative level, with the abolition of stamp duty the most obvious place to start,” she said in a December 2 release.

Other factors which buyers may want to look out for is the level of stock, clearance rates and even the growth potential of various properties. All of these elements could, if not influence affordability, help ensure buyers get the most value for money in the long term, offsetting the initial price of housing.

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