Demand for property tipped to rise after latest RBA interest rate cut
The RBA’s historic recent rate cut could force the hand of many potential buyers, with early signs already showing an uptake in demand for property.
The Reserve Bank of Australia governor Phillip Lowe does not expect buying to become excessive in the housing market following the board’s Cup Day cash rate cut to the historic low of 0.1 per cent.
In the past he would have worried lower interest rates would encourage people to borrow more and push up housing prices.
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“We are going to have to watch that carefully, but I think the dynamics of the housing market has changed,” Lowe said. “Population growth is slower, investors are seeing rents fall at the fastest rate that we have ever seen, the vacancy rate is quite high.
“So at the moment I’m not particularly worried about causing excesses in the housing market,” adding his main worry was jobs.
But there is early anecdotal evidence coming through from auctions, especially across Sydney, suggesting otherwise.
For starters, competition has intensified with the number of bidders this spring on the rise. The Ray White Group advised their data showed at least five people on average registering to bid at their 297 auctions, across Australia last weekend, with three actively bidding. Both metrics suggesting emerging confidence.
Ray White sold 79 per cent under the hammer, another very strong metric as typically clearance rates in the 70s means prices are on the rise.
“There is a strong positive sentiment within the market and confidence is at an all-time high,” Ray White NSW chief auctioneer Alex Pattaro said.
The COVID-19 pandemic triggered a brief five-month slide in the market, but CoreLogic data suggests values are on the rise, albeit the national figure being up by 0.4 per cent in October. There is no doubt the rate cut decision elevated the issue of borrowers taking a look at their loan repayments.
It will allow mortgage holders in safe jobs to feel confident in their current home loan serviceability and will, as the governor sought, encourage them to look for even lower rates. RBA data states that the average rate for customers on an owner occupier, principal and interest loan sits around 3.12 per cent.
Lowe said most mortgage holders will need to switch lenders to get any decent cut in their interest bill.
“The best outcome would be for standard variable rates to be lowered but if that doesn’t occur I’m confident there will be pass-through occurring through people renegotiating and switching,” he said. “I have been doing for years, I encourage everybody to go and ask their bank and ask for a better deal.”
It was likely the RBA could start lifting official interest rates within five years, Dr Lowe suggested.
Meanwhile, the prospect of extended low rates will prompt investors with cash in the bank earning next to nothing, to consider buying property in the hope of better returns. Sydney gross yields are tracking at record lows — 2.7 per cent for houses and at 3.3 per cent for apartments, according to CoreLogic.
Melbourne gross yields are also at record lows, but there are yields above 5 per cent at every other mainland capital cities.
The low interest rates will most likely prove irresistible for buyers, ever hopeful of great capital gains. While the RBA wants increased market activity, the economy can ill afford silly exuberance.
Originally published as Demand for property tipped to rise after latest RBA interest rate cut