The Reserve Bank of Australia (RBA) opted to keep national interest rates at a record low earlier this month, and some speculate that this will remain the case until 2015, but what does this mean?
We’re not economists, but we understand the point that people hoping to secure a fixed-rate mortgage will be happy with the fact the cash rate remains at 2.5 per cent, while those who are looking to add to their savings accounts will be less impressed with the news.
A complicated business made simple
The RBA released the minutes for its meeting at the start of the month, in which it was ultimately decided that no action was needed regarding interest rates. We’ve had a look through this document and it’s amazing how many different variables are considered, such as the state of international markets and Australian unemployment rates, before a verdict is reached.
Concerns have been raised that by keeping rates at an historical low, coupled with an influx of foreign investment, Australia is on the verge of experiencing a “property bubble”. If, like us, you prefer to keep things simple and jargon-free, it’s worth explaining that this term is used to describe the process of house prices rising at an unsustainable rate, before eventually crashing with devastating effect.
Analysts and commentators have suggested that this phenomenon is happening before our very eyes in Sydney and Melbourne, which have built themselves a reputation for being among the least affordable cities in which to live on the planet.
Why we shouldn’t succumb to scaremongering
In this kind of situation, it’s easy for people to get carried away and fear the worst. At True Blue, we like to keep a level head and play devil’s advocate before formulating a sensible and informed opinion.
We’ve already made our feelings clear on the cost of living debate, which is often overblown by the international media, and now it’s an opportune time to set the record straight on the housing/interest rates issue.
We’ve certainly not got our heads buried in the sand, as it’s clear for all to see that property prices in Melbourne and Sydney in particular are rising, with a lot of foreign investors choosing to pour money into high-class properties in prime locations. Figures provided by the Australian Bureau of Statistics (ABS) showed that residential property prices in Perth and Melbourne rose by 10.1 per cent and 15.6 per cent respectively in the year leading up to June 2014.
Well, guess what? Sydney and Melbourne are both exceptionally wonderful places to live, so it is only natural that the demand for real estate in these thriving, cosmopolitan cities is sky high.
The Australian Treasurer Joe Hockey recently claimed that it’s “easy” for international commentators to take a look at the situation Down Under and assume that a property bubble is emerging. This, he maintains, is a “lazy” assessment and one that is more likely to sell newspapers than a more carefully considered headline.
Mr Hockey conceded that there is a discrepancy between supply and demand, hence the recent increase in property values, but he doesn’t foresee “any substantial risk” of a bubble and expects local authorities and building companies to take measures to increase housing stocks, which is obviously great news for people who are planning on moving to Australia on a permanent basis.
Encouragingly, further statistics published by the ABS showed the number of new houses being built across the country in the past 12 months has reached record levels, although it must be noted that this was driven by a 23.1 per cent increase in Western Australia. This helped to offset declines in New South Wales and Victoria, so it’s clear that building companies in these areas need to up their game if the imbalance between supply and demand is to be redressed.
The moral of the story is?
With all that being said, the key takeaway from this article is that expats who are considering relocating Down Under should not be deterred by sensationalist headlines about property bubbles or high living costs. As we’ve shown, it’s important to weigh up all of the facts and make your own judgement, especially if your dream lifestyle in a magnificent new country is at stake.