With Regional Australia still suffering under lacklustre consumer and business confidence, many have concerns that the exuberance in the Sydney housing market may cause the RBA to withhold further interest rate cuts desperately needed to boost regional economies around Australia.

The recent release of the Westpac Weekly Economic Update prompted Westpac to expect subdued growth in the economy of 2.6 per cent, just 0.1 per cent higher than in 2013. With the peaking of the mining boom and high profile companies like Holden leaving the Australian Manufacturing sector, it is little wonder that monetary policy is seen as a major driver for confidence in the Australian economy in 2014.

Regional areas around Australia can only hope that Westpac’s predictions of a June 2014 and September 2014 0.25 per cent interest rate cut will provide some relief to regional economies still floundering after the GFC.

One spanner in the works is the hyper stimulated housing market of Sydney. With housing interest rates being at a 50 year low, the Sydney Market has displayed higher levels of market velocity (transactional volume) and all indications are that clearance rates are increasing and Sydney buyers are convinced the market is on the move again.

Here is the dichotomy of monetary policy: Markets like housing are diverse and heavily influenced by AWE (Average Weekly Earnings) in that location and consumer expectations. In contrast to the Sydney boom, Westpac states that “near recession conditions in South Australia and Tasmania”  thus are operating in an environment needing much more stimulus including that of monetary policy.

In my opinion, having mortgage broking businesses across two states gives me a unique insight to this two-speed housing market. I have real concerns that the RBA may hold off on lowering interest rates because Australia’s largest housing market, Sydney, is heating up ahead of the rest of the economy.

In regional areas like Far North Queensland, housing prices have fallen by up to 40 per cent since the GFC, which is nothing like the Sydney experience. There was some moderation in real estate asset values in Sydney post GFC however nothing like the major asset value falls in regional Australia.

Regional Australia has a long way to go to recover; I feel there is easily an argument for even further interest rate cuts if you exclude the recovering capital city housing markets of Sydney, Melbourne and Perth. We are in real danger of knee capping the recovery in Regional areas if the RBA doesn’t bring on the further rate cuts as Westpac anticipates in 2014.