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Rates stay put

It was not a big surprise that the Reserve Bank decided to leave interest rates alone on Tuesday.

This was the 11th consecutive month that rates have remained unchanged at 4.75 per cent.

But the Housing Industry Association (HIA) responded by saying that a cut to interest rates would have been “the appropriate action given current global as well as domestic economic circumstances”.

HIA chief economist Harley Dale said there were a myriad of factors that were weighing heavily on confidence and that was increasingly at risk of further derailing domestic economic activity.

“Now is the time to act to reduce that risk,” he said.

He said in times of heightened inflationary risk, which we don’t presently face, much is always made of the need for the RBA to be pre-emptive and hike rates.

“Right now there is a pre-emptive need to cut rates. It’s an entirely appropriate policy decision in late 2011,” he added.

It is interesting to see that although interest rates have remained unchanged for so long, the Australian housing market is seeing a fall in first home buyers.

Maybe that’s why there is such a glut of housing renovation shows on television at the moment.

Last week it was reported that the number of first home sales were the lowest they had been in a decade with new home buyers falling by one third and at the same time, more Australians were struggling with their mortgage repayments.

Despite a fall in house prices, the average price of a home in all states except Adelaide is still over $400,000.

So it was good news that this week the latest HIA/JELD-WEN New Home Sales Report, a survey of Australia’s major residential builders, showed that the number of new homes sold in August 2011 edged up by 1.1 per cent in August following declines of 8 per cent in July and 8.7 per cent in June.

Mr Dale responded by saying that new housing conditions were “ very soft at present”.

“For those who are in a financially capable situation to build a home, now is a very good time to contemplate doing so,” Mr Dale said.

“There is unwillingness on the part of households to commit given the uncertain domestic and global economic conditions which currently prevail, and that is understandable. That’s where interest rate cuts and fiscal stimulus can play an important role in boosting new housing supply in a very competitive market, which in turn would have a positive multiplier effect in bolstering the wider domestic economy.”

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