With the RBA announcing that they will reduce the cash rate by 0.25 points to an overall rate of 3.00% Australian homeowners are now paying one of the lowest levels ever . The main factor that has influenced this decision was the slowing growth in the Australian and International economic market with a particular focus on Europe and the fact that despite this slowing growth the Australian Government is committed to a surplus budget.
So what does this mean for the Australian property market?
In the past there has been a direct correlation between RBA rate decreases and housing sales increases. With the new rate cut reducing the pressure on loan repayments, it is expected that we will see an increase in consumer activity and a boost in the local economy. It is predicted that this increase in activity will be experienced within the local housing sector. The current low cash rate is expected to bring more home buyers and investors back to the housing market, many experts suggest that the increase in activity will then have the flow on effect of improved housing prices in 2013.
Prior to the Global Financial Crisis we were accustomed to seeing that a drop in the RBA rates would correlate with a drop in our interest rates from the bank.
There has been a change in recent years as bank funding costs, and mortgage rates, have risen relative to the cash rate. Dr Lowe from the RBA has said when funding costs ease the banks could return to passing on the RBA’s cash rate cuts in full to borrowers. “We are seeing some lessening of the pressure on bank funding costs. The wholesale spreads that the banks are paying are coming down, I don’t think we’re there yet but we are getting closer to it than we have been.”
After the RBA’s decision to cut the cash rate by 25 basis points to three per cent on Tuesday December 4, three of the four big banks said they would cut their standard variable home loan rate by only 20 basis points.
The ANZ will review its variable rates on December 14.
With the rate drops and the bank funding costs coming closer in line, now could be a great time to look into growing your property portfolio with MICM property.