Housing approvals plummet, forces RBA's hand

It seems the RBA’s decision to keep rates on hold was sound, as housing approvals endure the largest slump in almost a decade.

According to the ABS, there was a 14.8 per cent slow down in dwelling approvals in April.

The drop confirms previous industry warnings that the housing market would soften by the second half of this year and will push the national shortfall in housing supply past official estimates of 200,000 dwellings within months.

But while a drop in housing approvals was widely predicted, the slump far exceeded the forecasted 5 per cent decline.

The drop in housing approvals combined with a raft of other less positive economic data released over the last month, both domestically and internationally, persuaded the RBA to take a break from interest rate hikes.

Yesterday, the RBA decided to keep its cash rate at 4.5 per cent, snapping a series of three rate rises in as many months.

RP Data’s research analyst Cameron Kusher said the case for a rate pause was obvious.

“No doubt the RBA would have been happy to see the rate of property value growth slowing this month, with the RP Data-Rismark Home Value Index released on Monday showing that capital city property values increased by 0.2 per cent during April 2010.  This release comes on the back of six months of falling housing finance commitments, weakening consumer sentiment results, a fluctuating share market and ongoing economic uncertainty in Europe.  Given these factors, it becomes quite obvious as to why the RBA have decided not to raise interest rates this month, especially given that last month they indicated that rates were now back to ‘normal levels’,” Mr Kusher told The Adviser.

 

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