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A decision to drop the already record-low cash rate to virtually zero before the race that stops the nation could spell a resurgence of the Australian property market, a real estate researcher has said.
LJ Hooker’s head of research, Mathew Tiller, said the current expectation is that the Reserve Bank of Australia (RBA) will conduct a rate cut for the first time since March 2020, taking the current interest rate to a never-before-seen 0.10 of a percentage point.
“This is expected to take the official cash rate from the record low of 0.25 [of a percentage point] to as close to zero as possible,” he said.
“In addition, the RBA is also expected to pull a number of other levels in its arsenal, such as reducing the three-year bond target, term funding facility rate and more quantitative easing.”
Mr Tiller said all of the RBA’s actions are aimed at supporting the Australian economy, through its current challenges, and by setting up a stronger economy in 2021.
“Despite the reduced government stimulus, big-spending federal budget and the lifting of restrictions across most states, the decision to cut by the RBA is much needed to help encourage households to spend up big for Christmas and assist business investment moving forward,” he said.
And in good news for real estate, the researcher said the property markets have been “one of the biggest beneficiaries of this year’s rate cuts”.
“While prices have declined over the past six months, the magnitude of the falls has been much milder than forecast at the beginning of the pandemic,” Mr Tiller added, citing data from CoreLogic that showed property prices nationwide declined by just -0.1 of a percentage point in September.
While it continued a price fall of -1.1 per cent in the three months to September, it did not stop property prices from increasing by 4.8 per cent, on average, over the 12 months to September.
Mr Tiller said: “The majority of the price declines can be attributed to the restrictions on real estate activities in our capital cities, particularly Sydney and Melbourne.”
Despite recent declines, Mr Tiller highlighted how LJ Hooker has seen a 52 per cent increase in transactions since the height of government lockdowns between March and April, “demonstrating the resilience of property markets”.
He added that the group is also experiencing 15 per cent more sales transactions compared with 12 months ago, despite vendors being cautious and the number of properties listed for sale only being marginally higher.
The strong results are attributable, in part, to performances from LJ Hooker offices in regional towns and centres over the past three months, according to the researcher, which has been driven “by low interest rates but also those looking to relocate from capital cities to set up their own business or ‘work from home’ in a more laidback locality”.
“Looking forward, we expect the RBA’s November rate cut will further encourage buyers to turn up to open homes and auctions,” Mr Tiller has forecast.
He also expects listings to again rise as home owners that withdrew their properties from the market at the beginning of the pandemic become more comfortable about achieving a strong result.
Despite the positivity, the researcher did concede that the big test remains to be seen — and won’t hit until early 2021 “when the federal government removes stimulus measures and banks wind back loan deferral programs”.
“However, given the monetary policy measures put in place by the RBA and the big-spending budget outlined by the federal government, the economy should be strong enough to absorb any foreclosures or defaults that may occur,” Mr Tiller said.
ABOUT THE AUTHOR
Grace Ormsby
Grace is a journalist across Momentum property and investment brands. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communication (Journalism) from the University of Newcastle. She’s passionate about delivering easy to digest information and content relevant to her key audiences and stakeholders.
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