The Motley Fool

Home owners rejoice

A rate cut next week may be on the backburner after news out that the housing industry appears to be staging a recovery.

Home prices in Australia’s capital cities have recorded their second consecutive rise in February, according to the RP Data/Rismark Home Value Index out today. Prices rose an average of 0.3% last month, following a 1.2% rise in January.

RP Data research director Tim Lawless said while the results were positive, further gains were needed to offset recent falls, suggesting we were at least six months away from a full recovery. He added that the numbers make it less likely that the Reserve Bank of Australia (RBA) will cut interest rates next week.

Mr Lawless said, “The trend rate of housing value growth is slightly higher than inflation and pretty much in line with wages growth, which is arguably exactly what the RBA is hoping for.

While prices rose on average, the states had mixed results with Melbourne, Sydney, Darwin and Canberra all up, while Brisbane, Adelaide, Perth and Hobart were all down.

Sydney remains the most expensive capital with a median house price of $600,000 while Hobart is the cheapest with a median house price almost half of Sydney’s at $325,000.

Green shoots in the beleaguered construction industry continue to appear, which should give some further home for our building construction and supplies companies such as Boral Limited (ASX: BLD)CSR Limited (ASX: CSR)GWA International Limited (ASX: GWA) and Reece Limited (ASX: REH).

After 175 basis points of rate cuts since November 2011, it appears the rate cuts are now starting to slowly work their magic in the building industry.

Foolish takeaway

The news makes it ever more unlikely that we will see a cut in official cash rates next week when the RBA meets. The good news is that several mortgage lenders have started cutting their interest rates out-of-cycle, and we may yet see more rate cuts by the banks, without prompting from the RBA.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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