Rate cut will be ‘double-edged sword’ for industry

Rate cut will be ‘double-edged sword’ for industry

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Commentators are divided about how cheaper mortgages will affect the market, with some forecasting a surge in buying and others expecting little change.

SQM Research managing director Louis Christopher told Real Estate Business that this week’s 0.25 per cent rate cut had already prompted SQM to increase its Sydney growth forecasts.

A previous forecast, made in September 2014, predicted that Sydney property prices would increase by 8 to 12 per cent in the 2014/2015 financial year.

The new forecast predicts that Sydney’s growth spurt is more likely to be near the top of that four-point range and will extend throughout the 2015 calendar year.

Mr Christopher said the rate cut would also have a big impact in tourism centres such as the Gold Coast, because it will lead to a lower Australian dollar which in turn will attract more tourists.

However, he said that lower rates would mean little to resources towns that are feeling the effects of the mining downturn.

Domain Group senior economist Andrew Wilson said this week’s interest rate cut would do little to boost the market.

“It will only be at the margins that affordability is improved, because the whole reason we’re getting interest rates cut is because there’s rising concern over the performance of the national economy,” Dr Wilson said.

“I think it’s a little bit myopic for some commentators to be making extraordinary predictions of a housing boom through a 0.25 per cent reduction in the mortgage rate given that we have decade-high levels of unemployment, and rising,” he said.

Hockingstuart Brunswick director Rob Elsom told Real Estate Business he had mixed feelings about the Reserve Bank’s rate cut.

“For first home buyers, it’s a nice stimulus for them to go out and purchase something, but it’s a double-edged sword because they’re going to be competing against other prospective first home buyers who are thinking the same thing,” he said.

“Things will be attractive for investors with interest rates nice and low, but they’ll be competing against other investors and other first home buyers who are suddenly getting out there again.”

[Related: Rates forecast to fall to 2pc]

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