Strong Sydney price growth influences RBA decision

Cash-rate-cut-to-benefit-property-buyers_157_6003348_0_14100827_300Would-be borrowers have been waiting since December to see what the Reserve Bank of Australia’s (RBA) next cash rate decision would be – and it’s finally here. On February 3, the RBA announced that the cash rate was to be lowered to 2.25 per cent, making it an all-time low for the country.

Several reasons were given for this decision, ranging from the high level of unemployment through to some trade sectors finding times particularly tough at the moment. However, one city’s property market was given particular mention – Sydney.

Governor of the RBA Glenn Stevens revealed that “dwelling prices have continued to rise strongly in Sydney”, whereas other capitals have experienced mixed results. With concerns growing that a housing bubble may be on the horizon, this is one of the motivations for the cash rate reduction.

The January CoreLogic RP Data Home Value Index showed that home values in the Harbour City increased 1.4 per cent during the first month of the year. Over the past three months, values in the area have marked a rise of 2.4 per cent.

This is in stark contrast to some other parts of the country, where prices slipped at the start of 2015. Darwin, Adelaide and Perth all witnessed falls in dwelling values in January.

CoreLogic RP Data Head of Research Tim Lawless suggested that these results should quell any concerns that a bubble is forming in key city markets.

“This slower rate of appreciation should provide some comfort to regulators that housing demand is starting to taper, despite the historically low interest rate environment,” Mr Lawless noted.

Members of the RBA board are next due to meet on March 3, when a decision will be made on whether to maintain the current course of action or make a further change to the official cash rate.

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