For the third session in a row the Reserve Bank has bought up billions of dollars of government bonds and in doing so choked off a silly surge in interest rates and in fact sent yields tumbling.
After buying $3 billion worth of three-year bonds on Thursday and another $3 billion in a surprise move on Friday (as yields surged), the central bank was back in the market on Monday looking for a further $6 billion of 10-year bonds.
The bond buying and the rapid move in yields and the Aussie dollar will be high on the agenda at the March monetary policy meeting of the Reserve Bank board today.
After the bank’s Friday move capped a surge in 10-year yields at around 1.80% and choked off a move in three year yields above 0.10% (the official cash and three year rate), the RBA’s purchases on Monday sent 10-year yields sliding by 20-25 points.
That was after the silly 48 point (0.48%) rise in 10 year yields last week which also saw a surge in the value of the Aussie dollar to 80.08 US cents, before it slumped on Friday to end last week at just over 77 US cents.
It was around 77.50 US cents late yesterday after the strong house price figures for February were released showing the strongest gains in 18 years.
The yield on 10-year bond yields fell to 1.65% yesterday after the third round of bond buying by the RBA.
That surge in house prices in CoreLogic’s February report grabbed headlines yesterday morning but the company’s head of research questioned if the rally can be sustained for much longer.
“At this current rate of appreciation, it won’t be long before Australia’s two most expensive capital city markets are moving through new record highs,” Lawless added.
“With household incomes expected to remain subdued and stimulus winding down, it is likely affordability will once again become a challenge in these cities,” he wrote on Monday.
On top of that the great driver of housing and apartment demand, migration, has disappeared and the Australian population is projected to rise by just 0.16%, one 10th its 2019 rise in what would be the smallest rise since the middle of the First World War in 2016, according to RBA data.
Record low borrowing rates and government incentives aimed at helping first home buyers in particular (such as not needing Lenders Mortgage Insurance) helped house prices in metro and regional markets rise sharply in February.
CoreLogic said that for the first time in more than a decade housing values rose across each of the capital cities and regional Australia in the same month.
The CoreLogic data showed national home prices rose 2.1% in February, from January when they were up 0.9%. Values were up 4.0% on the previous February.
Prices across the major capitals rose 2% in January from the previous month, to be up 2.6% on the year.
The regional market surged 2.1% in the month and 9.4% for the year as city dwellers, hiding from coronavirus lockdowns, sought more living space and houses with gardens.
Sydney and Melbourne were among the strongest markets last month, recording a 2.5% and 2.1% lift in home values, respectively, as Australia’s two largest cities catch up from weaker performance throughout 2020. Prices in Brisbane and Perth rose by 1.5% each and Hobart saw a 2.5% surge.
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House prices have now regained and topped the September 2019 all time high and driving that has been the explosion in demand and finance, as the latest lending indicator from the Australian Bureau of Statistics on Monday showed.
New housing finance commitments rose another 10.5% in January and is now up 44.3% from a year ago.
First home buyer finance surged 10.1% from December – and is up a huge 73% on a year ago – to a new record high.
Excluding first home buyers, owner occupier finance was up an even stronger 11.3%. The first home buyer share of new loans slipped from a record 25% to 24.9%.
Investor finance is now picking up and rose 9.4% in January to reach $6.6 billion.
The ABS said investor lending has rebounded 62.4% since reaching a 20-year low in activity in May of last year.
The AMP’s Dr Shane Oliver says the continuing strength in finance commitments points to more solid house price gains in the months ahead.
