The Reserve Bank of Australia has yet again cut official interest rates by 0.25 per cent to a new record low of 0.75 per cent.
The RBA’s third reduction in the cash rate in five months is yet more good news for the housing market — that has already seen marked signs of improvement.
The long-expected move is primarily designed to increase employment and lift stubbornly low inflation back into the 2-3% target band.
“Although the outlook for the global economy remains reasonable, the risks are tilted to the downside,” says RBA governor Philip Lowe.
“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector should all support growth.”
The knock-on effect of these reductions should also increase housing prices as people’s borrowing power increases.
Even though the major banks have only passed on about half of the Reserve Bank's latest cut (owner-occupied mortgage rates have been cut by 13-15 basis points), that's enough to give a household with an income of $150,000 about another $12,000 to $14,000 in borrowing power.
They thus spend more and, because there is a limited supply of properties, this pushes prices up — a fact seen in the two previous tax cuts.
Sydney’s housing values have recovered by 1.9 per cent since bottoming out after the election in May and recently saw their best numbers since November 2018. A total of 939 properties went under the hammer in the last weekend of October, with 77.7 per cent selling, compared to 43.8 per cent of 608 Sydney auctions on the same weekend last year.
Meanwhile, Melbourne’s housing values posted its third month-on-month rise, reaching 1.4 per cent higher in August than the previous month.
After falling by 11.1 per cent between November 2017 and mid-2019, the market has recovered 1.8 per cent. So it appears the previous two interest rate cuts made a significant difference, especially in Australia's largest cities — which it relies on for its overall housing market.
This latest cut, then, should only aid these numbers, resulting in continuous property resurgence heading into Christmas and the New Year.
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