Record Low Rates to Place Upward Pressure on House Prices

The RBA has slashed rates for the third time this year, taking the official cash rate to another record low level of 0.1 per cent.

In a move that was wildly expected, RBA Governor Phillip Lowe decided to continue with its easy monetary policy by also launching a $100 billion bond-buying program.

In a bid to lower borrowing rates for both businesses and households and to stimulate the economy, Mr Lowe also noted that it would be unlikely that rates would be increasing in the next 2-3 years.

Perfect Timing

Canstar’s Editor-at-Large, Effie Zahos, says that the move might have been expected and the timing was right.

“Economists and the market did factor this decision in and interest rates have now hit rock bottom at 0.1%.”

“I think the timing of the cut was absolutely perfect because we are seeing an escalation in lockdowns across the globe, so we need to rely on local stimulus.”

Ms Zahos feels that the rate cut will help boost the Australian economy, particularly now that Melbourne is coming out of lockdown.

“Cheap funding will filter through to small businesses and with Christmas coming, the RBA would love to see job numbers up ahead of March when JobKeeper ends.”

Ms Zahos believes that with rates so low, buying a home is now a very enticing proposition.

“We’ve already seen this week that national property prices have started to increase across the country.”

“This will certainly be good news for homeowners, with the lowest variable rate we are seeing currently at 1.77%. With the property market, we’ve already seen just how resilient it has been and this will only fuel people’s appetite to get in.”

A Push to Buy Property

The news of another rate cut was also welcomed by the property industry as, which comes on the back of an upturn in property prices in recent months.

President of the REIWA, Domain Collins, believes that low interest rates are playing a major role behind the resilience of property prices across the country.

“Lower interest rates are certainly a significant component of peoples push to buy property.”

“At the moment, it’s currently home buyers and those looking to trade up is where the activity is that’s been reflected in the latest house price data.”

Mr Collins thinks that while there is buying interest, there are still some hurdles ahead on a national level.

“The RBA has already said that they won’t be raising rates any time soon - certainly not for a number of years.”

“That has certainly started to give people the confidence to go and borrow an buy. However, clearly, the RBA is suggesting we are going to be in a low wage and job growth environment for some period of time.”

Housing Affordability on the Rise

REIA President Adrian Kelly believes today’s interest rate cut will help fuel buyer interest as homes get more affordable than we’ve seen in many years.

“For the June quarter of 2020, REIA’s Housing Affordability Report showed that housing affordability had already improved with the proportion of income required to meet loan repayments decreasing to 34.5 per cent, a decrease of 0.2 percentage points over the quarter,” he said.

“Today’s interest rate cut, if passed on, would see the proportion of income required to meet loan repayments decreasing to 33.9 per cent.”

Mr Kelly thinks that the RBA’s cuts are boosting sentiment, which would lead to more upside in property prices.

“Yesterday’s housing finance data showed that September recorded the fourth consecutive monthly increase and the highest level since October 2009 on the back of improving consumer sentiment about purchasing a home, particularly amongst first home buyers.”

“Today’s interest rate cut will add to buyer interest.”

Easier to Borrow

Emmanuel Marios, principal of Derwent Finance, believes that the interest rate cut indicates that the economy can’t handle higher rates right now.

“We’re in a recession at the moment and the economy simply can’t afford interest rates going up any higher because of COVID and the continued impact it’s having.”

Mr Marios feels that the latest RBA decision could lead to an increase in Australians able to borrow. This will likely place upward pressure on property prices.

“With interest rates now sitting at all-time lows, banks are going to start dropping their mortgage rates and their assessment rates.

"Assessment rates are a floor rate which is higher than underlying interest rates, and used to ensure someone can afford the loan if they do go up.”

“If that floor rate drops, this means that borrowers are going to be able to lend more money and it also means that people who couldn’t borrow before might be able to now.

"This added capacity for borrowers to access cash means that prices will likely go up,” he said.

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