(Reuters) — Australian home prices surged in May while approvals to build new houses reached record highs, helped by super-low rates, adding yet another challenge for the country’s central bank, which wants to keep rates low until inflation revives.
Data from property consultant CoreLogic out on Tuesday showed national home prices climbed 2.2% in May, their second fastest increase since the late 1980s and the eighth straight monthly gain.
Separate figures from the Australian Bureau of Statistics (ABS) showed approvals to build private houses skyrocketed 67.4% in April from a year ago while total dwelling approvals soared nearly 40%.
Record low borrowing rates together with a government “HomeBuilder” incentive has pushed up housing demand, which is likely to extend despite the conclusion of the fiscal scheme. The red-hot market has provided a much-needed windfall to consumer wealth and confidence.
Buyers have been further encouraged by the outlook for borrowing costs, with the Reserve Bank of Australia (RBA) repeatedly saying rates were likely to remain at a historic low of 0.1% until at least 2024.
The RBA announces its monthly monetary policy decision at 0430 GMT at which it is widely expected to hold rates and reiterate its dovish stance despite exuberance in recent data, as there are few signs of inflation and wage pressures.
Other figures from the ABS out on Tuesday showed Australia’s current account surplus hitting a record of A$18.3 billion, suggesting the A$2 trillion ($1.6 trillion) economy may have expanded at a faster pace than previously thought.
Yet, exports looked likely to detract 0.6 percentage points from March quarter GDP led by solid import volumes.
Importantly, business inventories climbed 2.1% confounding expectations for a 0.2% increase and implying a 0.7 percentage point contribution to GDP.
First-quarter GDP data is due on Wednesday where economists have forecast a brisk 1% quarterly rise, which would take annual output back to its pre-pandemic level.
The better-than-expected numbers were still unlikely to shake the RBA’s dovish stance, in contrast to its New Zealand counterpart which has signalled interest rate hikes from as early as next year.
“The absence of any lived experience of price or wage inflation will likely see the RBA continue with the application of historically high levels of monetary accommodation, at least in the very near-term,” said GSFM investment strategist Stephen Miller.