Interest rates up again

The big news this week of course is that official interest rates increased for the fifth time in the space of seven months bringing the cash rate up to 4.25%. Based on the latest rise and statements from the major banks that they will move in line with the cash rate, we can expect the average standard variable mortgage rate to reach 7.15% (about 10 basis points lower than the decade average). The latest increase will add around $50 to the monthly repayments on a $350,000 mortgage.

The Reserve Bank will be hoping the latest rise takes some heat out of the Australian housing market, where values have risen 12.7 per cent across the combined capital cities over the twelve months to February 2010. Interest rates are a very blunt tool and are likely to have a dampening effect on both the over performing markets such as Melbourne and Darwin as well as underperforming cities like Perth, Hobart, Brisbane and Adelaide, not to mention markets outside the capital cities where housing values have generally not recorded large gains over the past year.

In other key data released this week, the rate of unemployment remained unchanged at 5.3 per cent with almost 20,000 new jobs created over the month. Importantly, the rise in employment was driven by a rise in full-time employment (up 30,100 workers) offset by a fall in part-time employment (down 10,600 workers). The unemployment rate peaked at 5.8 per cent in July last year and fell to 5.2 per cent in January this year.

Source: RP Data Property Pulse, 9 April 2010

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