Reserve Bank caught off-guard by housing price boom after rate cut

Reaerve Bank of Australia officials have conceded the instant jump in house prices after its first interest-rate cut this year came as a surprise, with home values rising every month since.

In a wideranging speech at the Australian Industry Group Executive Luncheon, RBA chief economist Sarah Hunter pointed out the bank underestimated how quickly Australians would respond to lower borrowing costs.

“Thus far, the response has been a little stronger than we anticipated, with activity in the established housing market picking up slightly more than expected in recent months,” Ms Hunter said.

In other words - Aussies went on a property buying spree faster than the RBA thought.

The central bank slashed interest rates three times this year, dropping rates by 25 basis points in each of February, May, and August.

Meanwhile, house prices nationally rose by another 0.6 per cent in October, marking the tenth consecutive month of house price appreciation, Proptrack figures show.

Sydney dwelling values have now grown by $91,600 so far this year - still below Brisbane price increases at $112,700 and Perth at $100,400.

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Despite the pick up in house prices being quicker than anticipated, the RBA’s November Statement on Monetary Policy suggests it is in line with “easing cycles”.

“Market conditions remain tight, with auction clearance rates rising to 18-month highs of above 70 per cent,” the RBA previously wrote.

The RBA also pointed to the government’s first-home package adding further heat to an overcooked market.

“The Australian government’s 5 per cent deposit scheme is expected to put some further upward pressure on housing prices in the period ahead.”

The housing market isn’t the only thing keeping the RBA up at night.

Ms Hunter also flagged concerns about Australia’s workforce - which remains a “little tight” - and whether easing cost-of-living pressures would see workers dial back their hours.

The bank is particularly focused on women and older Australians, who have been driving employment growth in recent years, and whether those looking for a job have the right skills for firms looking to hire.

“We think the labour market is currently a bit tight – in other words, it is operating slightly beyond what can be sustained with inflation at target,” she said.

The RBA is also questioning whether jobseekers’ skills actually match what businesses need – a mismatch that could spell trouble for the economy.