March economic update: surging house prices and a declining unemployment rate Mar 5, 2021

RBA PICTURE

Positive economic signs have continued throughout the first few months of the year, with the housing market surging by 2.1% over February, one of the highest monthly increases in 17 years.

The amount of money borrowed through home loans Australia wide also increased by 10.5% in January, with the total now 44.3% higher than in January 2020.

Despite this, the Reserve Bank of Australia (RBA) elected to leave the cash rate at 0.10% in their March meeting.

Governor of the RBA, Phillip Lowe, noted that housing prices across Australia have increased, and lending rates are currently at record lows for most borrowers. To assist in the recovery of COVID-19, the Government has proposed altering the current strict responsible lending laws. This would mean moving the responsibility of the suitability of loans more on the borrowers’, rather than the banks.

However, Governor Lowe voiced support for the responsible lending laws to remain unchanged.

“Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates,” he said.

RBA hopeful of a sustained recovery

The unemployment rate has also continued its welcome decline, dropping to 6.4% in February, and retail spending remains strong.

Nonetheless, wage and CPI growth continue to be subdued, and are likely to remain so for several years.

Governor Lowe warned that although there are better prospects to a sustained economic recovery than there were a few months ago, the path to recovery is likely to be bumpy and uneven.

Positive super growth in January

Super funds have also experienced another month of positive growth in January, although it was a minimal one.

Financial markets are closely tied to the ongoing management of COVID-19, as well as the successful rollout of COVID-19 vaccines. The management of new strains of COVID-19, as well as several snap lockdowns occurring across Australia, have made it clear that some market volatility is therefore expected to continue throughout 2021.

After January’s modest monthly return of 0.01%, Intrust Super’s Balanced option returned 8.63% for the financial year from 1 July 2020 to 31 January 2021.

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