RBA rate cut: What the Reserve Bank decision means for housing market

The property market has lost billions of dollars over the last couple of years but the Reserve Bank’s historical decision could stimulate a recovery.

The Reserve Bank slashing the official rate for the second consecutive month will “no doubt” have a positive impact on the property market but experts warn the upswing will be constrained.

Rate cuts in 2008 and 2011 laid the platform for a strong recovery in property, but AMP Capital chief economist Shane Oliver says wider conditions dragging on Australia’s economy this time around won’t allow a similar response.

He expects higher unemployment and weak economic growth will dampen the market’s forecast but says Australia may have already felt the worst of the property downturn.

“There’s no doubt it’s positive for the housing market,” Dr Oliver told news.com.au.

“We’ve seen in the past interest rate cuts do help housing demand because they make housing more affordable — it’s easier to get a loan, you’re on low rates.

“It means there’s a wider group of borrowers who might be able to get into the property market.”

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Dr Oliver compares the current property climate to the negative sentiment in May, when many conceded Labor would form government and usher in its negative property policies.

“There’s still a lot of gloom around the economy but interest rates are coming down and there’s not going to be any changes to negative gearing or capital gains tax,” he said.

“A lot of people were sitting on the sidelines, whether they were investors or owner occupiers, and may now consider upgrading or coming back into the market.

“There is a degree of pent-up demand out there that might give us a little bit of a spurt but I don’t know if that’s going to be the start of a sustained upswing like we saw at the start of 2012.”

RBA governor Philip Lowe cut rates to the lowest on record on Tuesday. Picture: Bianca De Marchi/AAP

Corelogic research analyst Cameron Kusher told news.com.au lower rates in isolation won’t have a dramatic impact on prices until the financial regulatory body — APRA — reduces the serviceability buffer from 7 per cent.

“But it looks like that is going to be removed at some point in time, so the combination of the removal of that and lower interest rates would likely mean more activity in the housing market,” he said.

“We don’t think it’s going to be a rapid rebound in the housing market, we think it’s still going to be a ‘slowly, slowly’ increase in the market.

“The main reason for that is it’s still a lot harder to get a mortgage than it has been in the past, even if those serviceability buffers are reduced.

“There’s still going to be a lot of scrutiny on credit worthiness of borrowers.”

Mr Kusher said there may be a wave of buyers looking to upgrade to a more expensive mortgage once the reduction in monthly repayments was realised as a result of RBA Governor Philip Lowe reducing the rate.

“In most cities, particularly in Sydney and Melbourne, yes values have fallen across the board but more expensive properties have seen a larger fall in value,” he said.

“So while your property might be worth less, the property that you’re upgrading into may actually be relatively cheaper because it’s fallen by a greater margin.”

But the research analyst reinforced his view the recovery would be gradual.

“Sydney is still down 14.9 per cent from its peak, Melbourne is still down 11 per cent from its peak,” Mr Kusher said.

“We’re still expecting it’s going to take a number of years for values to get back up to those previous highs.”

Ray White joint chairman Brian White said there had already been a wave of activity in the market recently and the stimulatory rate cut would help edge the market higher.

He told news.com.au 50,000 people attended the real estate company’s auctions in June, while early signs for July indicate there will be more listing activity this month.

“We’ve already seen a noticeable change in the atmosphere in the last few weeks with increased inspection numbers and people more willing to raise their hand at auctions again,” Mr White said.

The flattening of prices is a key indicator to investors to jump back into the market, he said, which was being fuelled by the rate cut and the positive election result for the sector.

“The message that the market has bottomed is just so clear,” Mr White said. “There’s just so much better news than people were probably anticipating.

“What I see happening at the moment is increased confidence of people to say, ‘Hey it’s good news ahead and let’s get organised and start doing something.’

“Signs for that (increased activity) couldn’t be better.”

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