The RBA board were upbeat in their assessment on the housing market at their February 2020 meeting where they left the cash rate on hold at 0.75 per cent.

They said that prices had "increased very strongly in Sydney and Melbourne in recent months", with hopes that higher housing prices and the increase in housing turnover will support consumption and dwelling investment.

They noted household consumption was lower than expected in the September quarter, despite strong growth in household disposable income.

RBA Governor Philip Lowe said the RBA's forecast was for growth in consumption to increase gradually, sustained by moderate growth in household disposable income and the recovery in the housing market.

"Growth in housing prices had picked up in most capital cities and parts of regional Australia over recent months", Lowe said.

Mortgages

Mortgage payments increased in the December quarter.

There was a rise in principal and excess payments, more than offsetting the decline in interest payments.

"Members discussed whether this increase reflected a change in behaviour by households and the potential for it to persist," Lowe said.

"They noted that some households were likely to be repaying their debts faster in response to low growth of their incomes and the earlier fall in housing prices."

Housing loan commitments also continued to rise, which the RBA said was largely driven by owner-occupiers. Growth in credit extended to owner-occupiers had increased to 5.5 per cent on a six months ended annualised basis in December.

Household consumption

The RBA suggested household consumption had been lower than expected in the September quarter.

"[This was] despite strong growth in household disposable income, supported by the receipt of tax offset payments and lower interest payments following the recent reductions in the cash rate."

The RBA were only expecting retail sales volumes to grow modestly in the December quarter, however nominal sales had increase strongly in November, namely due to Black Friday sales.

"Measures of consumer sentiment had declined over recent months, but consumers' views on their personal financial situation, which historically have had a stronger link to consumption, had been little changed.

"Members noted that a number of factors had contributed to the slowdown in consumption growth since mid 2018.

"The downturn in the housing market had reduced households' wealth, and the extended period of weak growth in household income had probably lowered expectations of future income growth.

"Members observed that the prolonged period of slow growth in income was expected to continue to weigh on consumption over coming quarters.

"Furthermore, recent data had suggested that households were directing more income to saving and reducing their debt.

Future rate movements

Lowe advised the lower interest rates could speed up progress towards the Bank's inflation and unemployment targets.

"In considering this case, the Board took into account that interest rates had already been reduced to a low level and that there are long and variable lags in the transmission of monetary policy", Lowe said.

"The Board also recognised that the incremental benefits of further interest rate reductions needed to be weighed against the risks associated with very low interest rates."

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