Easing interest rates should be good news for buyers and sellers alike, as well as boost home construction. Photo: Michelle Kroll.
Today’s interest rate cut will inject confidence into Canberra’s flat real estate market and provide opportunities for first home buyers who have been sitting on the sidelines waiting for a more affordable time to step onto the property ladder, says industry body REIACT.
The big four banks all announced they would pass on the 0.25 per cent rate cut to mortgage holders. The official cash rate is now 3.85 per cent.
REIACT CEO Maria Edwards said the cut, which would mean a saving of $80 a month on a $500,000 loan over 30 years, was a relief for homeowners and would-be buyers and ease the pressure generally on tight budgets.
“There’s been plenty of buyers out there, but waiting for the interest rate cut,” she said. “We think that it’ll create a bit of a buzz and excitement in the industry because there’s plenty of properties out there to buy at the moment.
“It’s just a matter of getting people to commit. A lot of people are suffering from paralysis by analysis at the moment, just waiting for everything to happen.”
Ms Edwards said the impact would depend on how quickly the cut was passed on, but if a couple more followed, that would be a boost for prospective buyers and market confidence.
She said many sellers had not been able to offload their properties because people could not access the necessary finance, but this would lift borrowing capacities.
“A healthy real estate market is one with transactions taking place, and we haven’t had a really great volume of them for some time,” Ms Edwards said.
An easing interest rate environment would also attract investment in the ACT and improve the long-term prospects for housing supply.
The fear is that it could also set off another boom, but Cotality research director Tim Lawless said price growth would continue to be constrained by stretched affordability, cautious lending practices, and the reality that despite 50 basis points of easing, interest rates remained in restrictive territory.
“While lower rates should help to make housing more accessible, further upward pressure on prices would offset the benefits of improved loan serviceability,” Mr Lawless said.
“Each of the four housing affordability metrics published by Cotality were either at record highs or equal-record highs at the end of last year, a reminder of the challenges many prospective home buyers face.”
The housing industry welcomed the rate cut, saying it would boost home building.
HIA senior economist Tom Devitt said it and the expectation of further cuts in 2025 would improve market conditions and confidence and continue to support an increase in the volume of homes starting construction.
More interest rate cuts look likely after the Reserve Bank downgraded its inflation forecast.
It said underlying inflation was projected to return to and remain sustainably around the midpoint of the 2-3 per cent range in a global environment unsettled by the trade war unleashed by the US’s tariff policy.
RBA governor Michele Bullock said after the announcement that the bank had taken a cautious approach on raising rates to protect jobs and warned it would still be alert to inflation flaring.
“One thing to keep in mind, we have made the judgment that global trade developments will overall be disinflationary,” she said.
“However, there is a risk to inflation on the upside: trade policies could lead to supply chain issues, which could raise prices for some imports, much as we saw during the pandemic.
“And so we’ll also need to be alert to such upside risks.”
