RBA cuts cash rate in further boost to property market

RBA cuts cash rate in further boost to property market

Posted on Tuesday, August 06 2013 at 2:50 PM

The Reserve Bank of Australia (RBA) has cut the cash rate to 2.5 per cent – its lowest level since 1959.

It’s a win for investors, with those who have an average loan of
$300,000 now likely to save at least $50 per month.

RP Data’s national research director Tim Lawless says the amazingly low
interest rates aren’t only helping investors, they’re even adding cash to their
hip pockets. He says it now means many residential properties have switched
from being negatively geared a couple of years ago to neutrally geared and in
some cases, even positively geared.

“With the average discounted variable mortgage rate now approaching the
five per cent mark, they’re more likely to find more and more properties are
approaching a cash flow neutral or cash flow positive yield,” he says.

“Anecdotally, more and more investors seem to be focusing on rental
yield and positioning for long-term capital growth.”

Raine and Horne chief executive officer Angus Raine says the interest
rate cut is likely to give the spring selling season an extra kick, especially
in the Sydney market.

“With historically low sales volumes and 25 to 30 per cent fewer homes
for sale than previous years, the rate cut will flush out vendors who have been
sitting on the fence,” Raine says.

Real Estate Institute of New South Wales president Christian Payne is
also optimistic about the latest cut. It’s confident the decision will help
boost consumer sentiment and the economy generally.

“We have already seen an increase in consumer confidence, following the
decision to cut interest rates in May and this reduction will further improve
that confidence, providing flow-on effects to the property market,” Payne says.

Lawless adds the further reduction in the cash rate comes at a time when
the housing market is already responding to the low debt-servicing environment.

“Since the housing market reached a recent low point in May last year,
we have seen dwelling values rise by 6.5 per cent based on the RP Data-Rismark
combined capital city index,” Lawless says.

“That equates to a gross profit of around $30,000 for the average
homeowner. Transaction numbers are up by almost 18 per cent compared with the
same time last year, which highlights that homebuyers, particularly investors
and upgraders, are moving off the sidelines and into active buying mode.”

However, the difficultly for the RBA going forward will be how to keep a
lid on what may be viewed as excessive housing market growth, while also
providing a sufficient level of stimulus, Lawless says.

He believes lower interest rates might not benefit everyone either –
it’s likely first homeowners will now find it harder to enter the market as
more investors decide to enter the market and competition increases.

“It’s going to be more difficult for prospective owners, particularly
those without equity behind them, to come up with a deposit,” he says.

“This affordability challenge is likely to be most felt by the first
homebuyer segment and it may be a factor that continues to prevent prospective
first-time buyers from entering the housing market.”

But Belinda Williams, Mortgage Choice head of corporate affairs, says
those already in the market can now pay off their loans faster.

“Now is a great time for clued-in and prepared buyers to consider
entering the property market, to get in ahead of the rising trajectory of
property prices and to take advantage of the historically low interest rates,”
she says.

“The good news for those who already have a mortgage is that these
currently low interest rates pose the perfect opportunity to repay their home
loan faster and look to achieve their next financial goal sooner.”

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