November 25, 2014 - Buying well the key to long-term success

Sydney Morning Herald | by Mark Bouris

It’s probably a sign of how stable our economy is that we wait for the slightest change in wording when the Reserve Bank decides on the cash rate.

Last Tuesday the RBA board met and decided to keep the official interest rate at 2.5 per cent – not only a historically low rate compared with the 5.2 per cent average since 1990, but also a rate that’s been kept the same since August 2013.

But it was the way RBA governor Glenn Stevens expressed himself on property prices and the Australian dollar that is worth looking at during the remainder of the year and into 2015.

For more than a month we’ve heard strong commentary from economists about unhealthy price inflation in the property market, driven by low interest rates. Some of that comment has predicted an end to negative gearing.

I haven’t joined this discussion because lenders’ figures don’t suggest a problem in the property market, and the Bureau of Statistics’ House Price Index series shows we are just slightly above the index average since 2002.

However, the RBA governor in his statement did mention investment property: “Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets.”

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