RBA Holds Rates, Housing Challenges Remain
The Reserve Bank of Australia (RBA) resisted the urge to make consecutive rate cuts and left the cash rate at 2.25 per cent at its March meeting.
Loan Market Chairman Sam White predicted that the rate hold would not slow down activity in real estate market, "We expect this rate cut to further encourage more buyers to enter the property market, not necessarily because of the interest savings but because a belief that interest rates aren't going to rise anytime soon. Its the directional sign that will spur buyers."
Mr White pointed out that home loan enquiry grew after the February rate cut, "We are in uncharted territory. Normally when the market has been raising for a couple of years, interest rates rise but the reality is interest rates lower than they ever have been in Australia. After the February rate cut we saw many buyers who were expecting the market growth to moderate, to rush back in, lifting enquiry during February," Mr White said.
One of the biggest challenges over the next year will be the impact low interest rates had on housing. Mr White advised, "This is going to put more pressure on house prices, which is challenging in the long term. We would like to see the growth start to moderate as would many market participants. No doubt this latest cut will add pressure for Australian Prudential Regulation Authority(APRA) to look at macro prudential measures to slow the availability of finance."
Mr White backs specific measures to better control house prices, "We firmly believe that the best way to introduce price sustainability is to increase supply and reduce the amount of direct and indirect taxes that a buyer pays when they purchase a new home - taxes that can amount to 50 per cent of the cost of that property."
Mr White suggested buyers should be prepared for interest rates to rise over the cycle but should take advantage of interest rates while they are so low.
"Lower interest rates simply mean you're paying less to borrow the banks money - when rates are lower you can pay more than the minimum put a serious dent in the balance of your loan."