Australia's hot housing market suggests caution

The state of Australia's housing market is likely to be one argument against further policy easing. Firstly, residential property prices continue to rise strongly - even if not quite at the pace seen in early 2014 when the gains were around 10% yoy. And while it is true that there are large differences between regions, in aggregate the various private sector price gauges put the rate of appreciation in the 6-7% range. 

These are heady rates, and the RBA must be concerned about asset price bubbles in the future - though perhaps not now. Secondly, the latest credit figures have shed some doubt on the notion that borrowing by housing investors is easing, as was suggested by the data towards the end of 2014 and at the start of 2015.

Hence, there must be some doubt in the RBA about the effectiveness of the macro-prudential tools that were recently employed. Finally, the strength of house prices is stimulating construction activity and bolstering growth.

All in all, and despite the housing market, Societe Generale expects the RBA to deliver on its easing bias this time around and believes this is likely to be the final cut in this cycle, and hence still consider current market pricing to be too aggressive.