RBA drops rates for the third time to reach a historic low

Yesterday the Reserve Bank of Australia (RBA) cut the official cash rate to a historic low of 0.75%. The third cut this year has been attributed to concerns about consumer consumption, the unemployment rate, and slow wage growth. Other contributing issues include low inflation and a slowdown in jobs growth.

However, these lower interest rates, together with the loosening credit policies (and improving household sediment) is seeing national housing values begin to recover. The CoreLogic September Home Value Index showed that national dwelling values rose 0.9% in the aforementioned month. Sydney and Melbourne are recovering much more quickly than the other markets around the country, but this is not surprising seeing as they entered the ‘trough’ earlier than the other capital cities. This rebound in the housing sector is expected to help improve economic conditions across the country, as higher housing prices will lead to a wealthier (and therefore more confident) household sector, making them more inclined to spend more.

Dan White, the managing director of Ray White, said today’s rate cut by the RBA is a win for anyone looking to make a move in the property market, provided it’s passed on by banks and lenders to its customers. This is expected to occur to some extent, if recent history is any indication. Word on the street is that if your variable rate loans don’t start with a ‘2’ in the coming months, it’s time to shop around.

“The optimism on the ground across the country for both buyers and sellers is palpable right now and that’s highlighted in our auction clearance rates,” White says.

RBA Governor Philip Lowe noted after the meeting that “there are further signs of a turnaround in established housing markets, especially in Sydney and Melbourne.

“In contrast, new dwelling activity has weakened and growth in housing credit remains low.

“Demand for credit by investors is subdued and credit conditions, especially for small and medium-sized businesses, remain tight.

“Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.”

Written: 4 October 2019

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