Why RBA will leave interest rates on hold
21/02/2012 
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Home buyers and homeowners can breath easy as interest rates should be left as is by RBA board when it meets today.
The Reserve Bank of Australia has done its job and inflation in under control, and mortgage rates should be left as is.
In fact I believe that the May interest rate rise was one too many. Homeowners now need a break.
- Inflation is under control and
- Our unemployed rate of 5.1% is the envy of the World.
- The Government is looking at ways to get more people in the work force. That is,the employment figure looks to improve over the next few months and more labour may be found by getting those currently not seeking work into the work force.
For these two reasons interest rates should be left on hold today.
The other reasons why interest rates need to stay low.
The US economy is not yet out of the woods. It could yet double dip into a another recession, unless President Obama’s plan to stimulate small business hiring actually works. I said two years ago that the US had betrayed the trust of financial markets by on selling dude loans, and that would cause the US to lose its position in World Economies.
Europe’s financial crisis is still a long way from a certain fix. Whilst many believe that this can’t last forever, 2 years is not “forever”and Japan’s economy struggled with stagnation for decades.
Australia’s Housing shortage has not gone away.
We have contained housing price rises, and have reduced immigration by nearly half what is was two years ago, but underlying demand for housing is still high due to growing shortages.
These shortages are made worse by the HIA reported falling new home orders and new home starts caused mainly by high land prices and as a consequence, movements in mortgage interest rates.
The key issue here, which is not an election issue for some reason, is that if people had access to cheap land, and build smaller homes, then the interest rates would not be hurting new home construction like they are.
The problem is that most new home buyers are people moving up and they want to build bigger homes,but don’t want the commute times.
Whilst first home buyers without equity and little savings can afford the new home costs, in most capital cities.
We desperately need a fix to the housing shortage by fixing the affordability, and build new homes quicker than Julia Gillard needs to change her game plan.
Mortgage home loan interest rates should stay low for the next few months as long as inflation is low, then interest rates should stay as is for home buyers and homeowners.
Author: Rick Adlam, Mr Mortgage
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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