In terms of the overall market, news of the Reserve Bank (RBA) decision to keep the official cash rate on hold last week shocked the market - the vast majority of commentators had predicted a 25 basis points increase. Instead of an increase, the board decided to wait and take stock of the recovering economy before making any further move, despite an above target core inflation rate and increased house prices. RBA Governor Glenn Stevens said that lenders have raised their rates at a faster rate than the RBA increases and that information about the impact of the combined changes is so far limited. He added that the cash rate would still have to be tightened further to control inflation.

In an AAP article, AMP Capital Investors Senior Economist Bob Cunneen said the RBA decision was just a “stay of execution” and that Australia was still on track for an official cash rate of 5% by the end of the year.

Rising rates have already hit new home sales, according to a leading housing industry body, HIA. AAP reported that new home sales fell by 4.6% in December and HIA Chief Economist Harley Dale said the recovery in the housing market could be constrained by the expected increase in lending rates through 2010.

Meanwhile the Sunday Telegraph reported that almost half the first home buyers lured into the market by the Federal Government’s First Home Buyer Grant Boost are struggling to meet their repayments and many are already in arrears. A survey of borrowers by Fujitsu Consulting revealed that 45% of first time buyers who entered the market in the past 18 months are now experiencing “mortgage stress” or “severe mortgage stress”. The article said those numbers are likely to worsen this year with further rate increases. Steve Keen, professor of economics at the University of NSW said last year that the homeowner grants were a disaster waiting to happen.

A good level of buyer activity is currently evident amid signs that increasing numbers of properties are coming onto the market for sale. With the future as uncertain as ever, any activity around your property should be carefully evaluated this week.