RBA: We are not responsible for house prices

author-avatar By on February 05, 2021
RBA: We are not responsible for house prices

Australia's central bank has refused to intervene in rising house prices.

In a speech to the House of Representatives Standing Committee on Economics, Reserve Bank (RBA) Governor Philip Lowe said controlling house prices was not one of its responsibilities.

"Housing prices are now rising across most of the country. Even so, the national housing price index is only around the level reached four years ago," Dr Lowe said.

"As we have previously discussed at these hearings, the RBA does not – and should not – target housing prices.

"Instead our focus is on the lending that is used to purchase housing." 

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

House prices rose for the fourth consecutive month in January, surpassing pre-COVID levels by 1.0% and sitting 0.7% higher than the 2017 peak, according to CoreLogic. 

Dr Lowe said had the housing market crashed last year like many forecasted, any economic recovery would have been far more difficult. 

"There are many moving parts here at present: record low interest rates; a shift in preferences towards houses and regional locations; large government incentives for first home buyers; the slowest population growth in a century; very high rates of house building; and a decline in apartment rents in Sydney and Melbourne," he said. 

"In the face of all these moving parts, the housing market has been more resilient than expected and this has been helpful in terms of the overall economy." 

In the RBA's Statement on Monetary Policy, the central bank updated its economic outlook for the coming years as a result of the better than expected recovery. 

In its central forecast, unemployment will continue to trend downwards, dropping to 6% by the end of this year and 5.25% by mid 2023. 

However, the end of JobKeeper will see further job losses this year. 

"But, over time, these are expected to be offset by the jobs created by the ongoing economic recovery," Dr Lowe said.

"Job vacancies, job ads and business hiring intentions have all rebounded sharply, which suggests continuing solid employment growth over the next few months." 

In the downside scenario, unemployment will remain steady for most of 2021 and will decline only gradually after due to large COVID outbreaks. 

In a more optimistic upside scenario, positive health outcomes, faster easing of restrictions, and boosted spending and confidence would see unemployment fall below 5% by the end of next year.

Meanwhile, inflation isn't expected to climb into the RBA's target range of 2-3% before 2024, meaning it will never have sat in that band for the entirety of Dr Lowe's tenure, from 2016 to September 2023. 

Wage growth is set to be a similar story, sitting below 2% for the next two years, even slower than the low rates recorded prior to the pandemic. 

Bitcoin "not really money" 

For the cryptocurrency geeks, read on: The RBA's assistant governor Michelle Bullock gave it a not-so-glowing shoutout. 

“I think there is a lot of fuss over bitcoin and it’s not a payment instrument and it’s not even really money,” Ms Bullock said.

“I think there is a lot of fuss about it as a potential asset." 

Whether crypto is really money is debatable to some, but its volatility is not. 

Off the back of meme traders, cryptocurrency 'Dogecoin' is up 380% in the past month and 696% this year. 

It started off as a joke, and has since skyrocketed thanks to some pesky  reddit-traders, even getting a shoutout from Elon Musk. 


Photo by Alex Eckermann on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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