The US Federal Government has announced it will wind-back its stimulus program, bringing optimism to the Australian housing market.
The US federal government announced yesterday it would trim its $US85-billion-a-month ($95.7 billion-a-month) bond-buying program to $75 billion, with future reductions dependent on economic data. The buying of mortgage and Treasury bonds were reduced by $5 billion each.
While the announcement of a gradual taper of $10bn per month is “very modest”, the move signals a positive outlook for brokers, the housing market and the economy, HIA chief economist Dale Harvey told
Australian Broker.
“It’s no secret that there’s a general hope within the Australian business community that we see a lower average dollar rate for 2014 than we have over the last few years, and news that the Fed’s tapering is underway should bolster the US dollar and therefore lead to some depreciation in the Australian dollar - so in general it’s a tick in the box.”
Ultimately, the news should lead to higher business confidence, more investment in the economy and a “sustained recovery” in residential construction and property transaction volumes, said Dale.
“The question mark is how long it takes for some decent traction in that recovery to form - and that’s probably where there’s still some uncertainty.”
The
RBA has made it clear in a number of announcements recently that the Australian dollar is still uncomfortably high, with
RBA governor Glenn Stevens stating in its most recent meeting that the board “has an open mind” about the need to lower interest rates further.
Speaking at the house of representatives this week, Stevens indicated the reserve bank was increasingly looking to methods other than rate cuts to lower the dollar.
“Watch this space, work in progress, and we will be evaluating these things as time goes by,” said Stevens.
The Federal Government’s announcement has further decreased the likelihood of rate cuts, said Dale.
“If you’re looking at how we assess things on the 19
th of December compared to 24 hours earlier you’d have to say that the chances of further interest rates have lessened even further.”
The outcome of the decision should have an overall positive impact on broker businesses in 2014, said Dale, however it needs to be assessed in context.
“There are an enormous amount of small and medium-sized businesses in the Australian economy and all of these businesses are making decisions about buying and selling, owner-occupier and investor property. In so far as a lower dollar might assist business prospects then it might in turn assist confidence, and therefore investment. So there’s a definite link overtime where might see a sustainable recovery but there’s a great many variables that might have an impact on mortgage demand.”
