Budget could spark rate cut

An interest rate rise is now completely off the table, with one senior economist believing another rate cut is more likely.

Speaking with Real Estate Business, Dr Andrew Wilson, senior economist at Australian Property Monitors (APM) said while this week’s Budget announcement didn’t specifically target the property market, buyers and sellers will still be impacted.

“The predictions in the Budget were for unemployment to rise to 6.25 per cent over the next financial year, and economic growth is set to remain well under trend at 2.5 per cent annually.

“They are conditions that reflect an economy that is continuing to shed jobs and certainly one that is not growing. These aren’t the conditions you would ever want to have a rate rise in,” he said.

Instead, Dr Wilson is more inclined to believe that the Reserve Bank of Australia may cut the cash rate.

“The belt tightening will flow into spending habits and consumer sentiment, which is a scenario where there isn’t going to be a lot of confidence in buying patterns," he said.

“I think we’re in for a lengthy period of flat interest rate policy, and if anything, there’s probably a chance of another cut even though interest rates are low at the moment. Particularly with economies such as Brisbane, Hobart, Melbourne and Adelaide with unemployment over seven per cent, it’s not really the environment to raise interest rates.”

The Canberra market, which was the only property market to lose ground in the first quarter of 2014, will also be further impacted due to additional job cuts.

“There will be ongoing job shedding in Canberra, which is going to impact an already weak market.

“Canberra has been reeling from these job cuts over the last three Budgets, and this is another addition to that. It’s no surprise the Canberra housing market is the underperformer at the moment,” Dr Wilson said.

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