Published On: Wed, Aug 3rd, 2016

Reserve Bank’s interest rate cut tipped to bring more buyers to property market

Prospective buyers may stretch themselves a little bit further if the Reserve Bank's interest rate cut was passed on.

Sydney and Melbourne’s spring housing markets are tipped to get a pep in their steps following the Reserve Bank’s decision to slash the official interest rate to a historic low of 1.5 per cent.

The 0.25 basis points drop on Tuesday, if fully passed on, should encourage buyers to stretch themselves further and more vendors to put their home on the market, experts say.

More supply pumped into the strengthening markets, fuelled by a shortage of stock, is expected to keep prices growth at more sustainable levels.

An interest rate cut would improve affordability and confidence, Domain Group chief economist Andrew Wilson said.

Sydney and Melbourne have recorded relatively strong July auction activity, with clearance rates at or near their highest levels for the year, he said.

“The market certainly has upward momentum, and that will only be added to by a cut in interest rates,” he said.

“It certainly will set the scene for what will be a revival in terms of listing numbers and a continuation of what is really a sellers’ market in both Sydney and Melbourne.”

LJ Hooker chief executive Grant Harrod said the decision should spur listings ahead of the spring selling season.

A shortage of stock had underpinned price growth in Sydney and Melbourne over the past quarter, he said, and more listings would bring greater sustainability to the market.

“We’re now a month away from the peak selling season and the RBA’s move will motivate buyers even further,” Mr Harrod said.

Melbourne-based Trudy Biggin, of Biggin and Scott, said the rate cut would give people more confidence to stretch themselves just a little bit more to buy a property.

“And that’s what you have to do in this market,” she said. “If you want to get something when the market’s so strong, and there’s so few of them, you’ve got to be in that position where you can go just that bit extra.”

Lower interest rates was a contributing factor to prices growth, but it also meant the economy wasn’t performing very well, she added.

Ms Biggin believed there would continue to be a scarcity of properties coming onto the market because many people – particularly downsizers in the bayside region – were scared to sell because they did not see many homes they could buy.

CoreLogic head of research Tim Lawless said there would likely be a renewed level of scrutiny on the housing market by the government if the cut was passed on.

“A resurgence of growth could trigger a new round of regulation from APRA (the Australian Prudential Regulatory Authority) aimed at limiting growth in investment lending and/or tightening loan to valuation ratio requirements for lenders,” he said.

“The latest interest decision is likely to keep a base level of demand across the housing market, however, other factors, such as affordability constraints, higher supply levels, tighter lending conditions and weak rental markets are likely to see growth conditions continue moderating back to more sustainable levels.”

 

[Source: Domain]