Cash rate v house price growth

About a year ago I posted this chart.

I have updated it to include the most recent and reliable annual house price growth – (being for fiscal 2020) – and the recent drops in the cash rate, including today’s drop to effectively 0%.

It is worth remembering that since 1990 the official cash rate has dropped 48 times.

In April 1990 the cash rate was 15.5%.  In early November 2020 it is just 0.10%.

Even before all things Covid, I wrote in late September last year, that I expected the cash rate to keep falling – and at least two more times or by 0.5% in total over the next six months – in order to try and keep the Australian economy growing.

And of course, to help address the slide in housing prices at that time.

The RBA dropped the cash rate by 0.25% in October 2019 and three times during 2020, twice during March.

The chart shows that falling interest rates do – eventually – help instigate house price growth.

I believe that the Australian housing market has now entered a ‘sweet spot’, helped by lower interest rates, easier access to credit and government stimulus.

I also think this will last for about a year, maybe a bit longer, after which the longer term, and larger, trends will start to exert their influence.

So, enough the bump.  Most housing prices should increase.  By how much is a fool’s errand.   But beware that harder economic times are coming once the stimulus stops and inflation starts to raise its head.

More on inflation soon and next week it is regional Queensland rental markets as promised last week.

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