3 takeaways from the latest cash rate decision
There were no surprises in the April press release from the Reserve Bank of Australia (RBA), with the cash rate staying put at 2 per cent for at least another month. We've nearly racked up a year of stability now, and even though some lenders hiked interest rates last year, it's still historically good weather for borrowing.
So if you're looking at an investment strategy to create wealth, there hasn't been a huge amount to get worried about from the RBA. However, that doesn't mean there were no valuable bits of information released to help you shape your financial plans. Here are three takeaways from the cash rate announcement.
1) The cash rate might go down again
One of the main purposes of the official cash rate is to influence inflation, either by slowing it down or increasing it so it stays within the RBA's target range. In the April announcement, RBA Governor Glenn Stevens noted that inflation was at the lower end of their preferred range, and "continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand".
At the moment, the RBA wants inflation to be between 2 and 3 per cent. The Australian Bureau of Statistics recorded consumer price index inflation at 1.7 per cent between December 2014 and 2015, which means that the RBA might actually have to cut the cash rate to spur demand.
For property investors, the takeaway here is that there could be room for lower interest rates on home loans in the near future!
2) The property market's makeup is changing
While property investors were right across the market through a lot of 2014 and 2015, the restrictions put on lending and concern from the RBA has seen the investment market dwindle somewhat recently.
As Mr Stevens says, "credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers". Reserve Bank data shows that owner-occupier lending is increasing a lot faster than it is for investors at the moment, although both groups are borrowing more.
This means that property investors might come up against less competition going for certain properties than they would have in 2015. However, it always pays to get professional investment advice no matter what the market looks like – after all, it's about you and your money, not what everyone else is doing.
3) The slowdown is in full effect
People could start looking elsewhere for property hot spots – and Queensland has more than its fair share.
While the slowing of property prices in Sydney has already been covered by pretty much everyone, Mr Stevens also said that Melbourne was experiencing the same pumping of the brakes. This means that people could start looking elsewhere for property hot spots – and Queensland has more than its fair share.
While Mr Stevens referred to other markets as experiencing "subdued" growth, research company BIS Shrapnel has highlighted Brisbane and the Sunshine Coast as two property markets to experience double digit value increases between 2015 and 2018. Certainly the kind of prospects that will excite a lot of wealth creators!
Making the most of now
Even when nothing changes with the cash rate, there is still plenty to learn. The way RBA press releases are worded tells us a lot about their predictions for the future, and leaving themselves wide open for easing of policy suggests that it might actually happen this year.
As we come up on one year since the last cash rate cut, this might have house hunters very excited. Banks don't necessarily have to follow the cash rate, but any cuts would leave the door open for more affordable home loans.
When you want to find out more about your investment prospects, don't hesitate to get in touch with the team here at Think Money!