The easing in the trimmed mean rate of inflation, soft economic growth and a gradual loosening in labour markets has been enough to stave off another rate hike, with the RBA’s board deciding to keep the cash rate steady at 4.35%, where it has held since November last year. 

With the quarterly rate of core inflation easing back to 0.8% in the June quarter, in line with the RBA’s May forecast and down from 1.0% in the March quarter, much of the pressure has come off the RBA to lift rates.  A slowdown in job growth and a subtle lift in the unemployment rate were also at play in keeping rates on hold.

Although a stable interest rate decision is seen as a positive for borrowers and housing more broadly, we aren’t expecting today’s outcome will have a material influence on housing trends. 

While stable rates and lower inflation should help to lift consumer sentiment, which has historically shown a close relationship with property sales, the August hold decision may not be enough to see that rise in consumer sentiment flow through to housing market activity. Recent growth in property prices has had more to do with low supply, tight rental conditions and demographic factors than sentiment through the housing upswing to date.

Many of these factors are now losing their potency, with the trend rate of home sales easing as affordability becomes more challenging, migration slows and momentum leaves the upswing in rents.  Even if sentiment lifts, an improvement in affordability barriers or strengthening in household balance sheets isn’t likely until interest rates start to fall.

Similar to the volume of home sales, housing values have trended higher in the face of high interest rates and cost of living pressures.  Although the growth trends are diverse from city to city, the pace of gains is clearly slowing at the macro level.  On a rolling quarterly basis, CoreLogic’s national Home Value Index (HVI) has slowed from 3.3% over the June quarter last year to 1.7% over the three months ending July 24.

While the RBA Board is leaving their options open, if the inflation trajectory continues to ease, the next movement in interest rates should be downwards.  Whether this will be enough to revitalise the housing growth cycle is open for debate.  There is a possibility that affordability pressures and, eventually, a housing supply response, will keep a lid on price growth even as rates come down.

The timing of a rate cut remains uncertain and dependent on the flow of data, especially inflation and labour force outcomes.  The earliest forecasts have a rate cut pencilled in for November, while market pricing is pointing to February next year.

Commentary by Tim Lawless, Research Director at CoreLogic Asia Pacific.

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