0.1% cash rate a real ‘shot in the arm’

Yesterday, REB reported on the RBA’s decision to drop the cash rate to its lowest effective bound — 0.1 of a percentage point. 

While widely expected, it is a decision that’s being widely applauded for its beneficial effect on affordability, consumer confidence, and its impact on the wider economy. 

Here’s what some commentators have had to say:

Affordability to ease

The Real Estate Institute of Australia (REIA) said the interest rate cut will “add to buyer interest”.

REIA president Adrian Kelly said the decision “will definitely benefit home buyers”, with the RBA “obviously throwing the kitchen sink at this pandemic”.

The association has flagged that it is now up to the banks to pass on the cut, in full, with Mr Kelly outlining that if the full 0.15 of a percentage point decrease is passed on to customers, housing affordability could improve by 1.7 per cent.

“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 [of a percentage point] over the quarter,” the president stated.

“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.”

The RBA decision comes as new housing finance data released on Monday revealed September had recorded the fourth straight monthly increase in loans, putting housing finance to its highest level since October 2009.

According to Mr Kelly, this is “on the back of improving consumer sentiment about purchasing a home, particularly among first home buyers”, with personal tax cuts unveiled in the October budget also improving affordability.

Momentum set to build

Weighing in on the RBA decision, CoreLogic’s head of research, Tim Lawless, believes it’s “highly likely” that mortgage interest rates will continue to fall.

“Historically, cuts to interest rates have fuelled housing market activity and generally aligned with upwards pressure on dwelling prices,” he explained.  

“With the trend in housing values already rising around most areas of the country, there is a good chance lower rates could see momentum building across the nation’s most valuable asset class.”

Noting that the RBA’s primary focus from lower interest rates is to ensure businesses are confident enough and willing to invest, as well as to encourage households to spend, Mr Lawless commented that “with this in mind, the RBA is likely to look through the ‘noise’ of higher housing prices in an effort to stimulate business investment, jobs growth and household consumption”.

Calling the extremely low interest rate a stimulus measure, the head of research said this combined with federal budget initiatives and state incentives, such as stamp duty concessions and building grants, are likely to be enough to outweigh the headwinds facing the market — such as the winding down of JobKeeper and the expiry of home loan payment deferrals.

Confidence is key

Some of Australia’s biggest names in real estate have also confirmed that the rate cut will bring good news to the property industry as a whole, with Raine & Horne having called the RBA decision “a significant shot in the arm” for real estate.

The network’s executive chairman, Angus Raine, said the announcement “augurs well for Australian property in the new year, as it’s sure to give those home owners who have been sitting on the fence since the beginning of the pandemic the confidence to make a move to sell”.

“The facts are that most markets around Australia have a shortage of properties for sale — yet buyer demand is high,” he said, noting days on market is dropping to near record lows, and holding back many potential buyers from making a purchase.

“For example, it’s taking just 21 days to sell a property in Sydney, and about the same in Darwin.”

Between now and Christmas, Mr Raine anticipates even more buyers to “turn up”, leading to increased market action resuming early January after a short break.

The banks’ turn

Ray White managing director Dan White has complimented the RBA’s pre-emptive and forward-looking approach to monetary policy as “best in class”.

Mr White said the rate cut “will help our customers, many of who have been struggling in this economy and particularly during COVID. This rate cut will help all our customers across all markets in Australia.”

Acknowledging that the cut was widely expected, the managing director said “the RBA knows the property market is one of the central pillars in the Australian economy and housing is an essential need”.

“We just hope that the banks will pass it on,” he said, urging all lenders to assist the RBA in reaching its aims.