The rising unemployment rate and slow home loan growth has forced the Reserve Bank to cut the official cash rate.
At its board meeting earlier today, the RBA decided it was “prudent” to cut the official cash rate 25 basis points, taking it to the historic low of 2.75 per cent.
RP Data’s national research director Tim Lawless said while the Reserve Bank was likely to be “reasonably comfortable” with the pace of the housing market recovery, there were no doubt a few things playing on the Board’s mind when making this month’s cash rate decision.
“What may have been most concerning to the RBA though is the pace of dwelling construction and consumer appetite for newly constructed homes,” he said.
“Dwelling approvals and commencements remains weak and although new home sales have improved, according to the Housing Industry of Australia, the number sold remains historically low.
”If we are to see the construction sector pick up where the mining boom is leaving off, lower interest rates may be the catalyst that is required.”
Real Estate Institute of NSW CEO Tim McKibbin said the reduction in interest rates was the correct decision given the current state of the economy.
“We have been calling for another cut in interest rates for some time,” he said.
“Through structured incentives, including interest rate reductions, we are seeing the green shoots of growth and we are delighted the RBA has acted to support the economy generally.
“The 25 basis point cut today, combined with the decreases in 2012, will provide the necessary stimulus and confidence to build upon the modest gains in the property market seen towards the latter part of last year and into 2013.
“It is vital the RBA continues to respond to the needs of our economy, in particular the property market,” Mr McKibbin said.