There is growing speculation that the RBA is rapidly running out of bullets to fire after the latest rate cut saw the official cash rate fall to a record-low 0.75%. But that hasn’t dented the sharp rebound in property prices with prices jumping by record levels during September.
The move by Governor Lowe and the board was not unexpected, but what we have in store going forward is still a little unclear.
Financial markets have now priced in a 30% chance of another 25 basis point cut in November. Whether that happens or not, the door is now open to another cut next year or even something as drastic as QE.
We have already started to see a clear recovery in house prices on the back of the three interest rate cuts this year, but there are still some concerns for Lowe surrounding the state of the economy and what that means for the mining states.
So far we are seeing that Sydney and Melbourne property are the big winners from the RBA’s actions to date. But that’s not the case everywhere around the country.
There are still some worries surrounding the broader economy and as yet, there has been no improvement in the unemployment rate. In-fact it has ticked higher by 0.1% since the cuts started rolling out. This is a worry for the RBA as they have linked their policy to a falling jobless rate.
The cuts are also likely to start having a diminishing returns, given the record low levels with none of the big four passing on the full cut across the board. The Commonwealth Bank cut its standard variable rate for owner-occupier loans by 13 basis points. While NAB is also cutting 15 bp off its owner-occupier and interest-only loans.
Westpac will lower variable rates by 15 basis points for owner-occupiers and investors. While ANZ will lower rates by 14 basis points for owner-occupiers and 25 basis points for investors.
The Australian dollar has also fallen considerably and is back trading at levels not seen since the GFC – currently decade lows. With the decline in the Aussie, there will also be more opportunities for foreigners and expats to move money back into Australian property to capitalise on both rising prices and strong yields in certain areas.
What Does This Mean For Property Prices?
We’ve already started to see what this record-low interest rate environment is having on the broader property market.
The latest monthly figures from CoreLogic have shown that both Sydney and Melbourne have seen another big jump. Both capital cities have recorded a 1.7% lift in dwelling values, while Canberra also continued its strong run, finishing 1.0% higher on the month.
Both Sydney and Melbourne have really bounced back since the most recent housing boom started to slow and we have seen nationwide dwelling values experience its biggest lift since the peak of March in 2017.
Even as we move into the Spring selling season, buyers continue to be out in force in Melbourne and Sydney, with both cities experiencing increased sales volume. Over the quarter, prices are now up 3.5% and 3.4% in Sydney and Melbourne and the trend is up.
By his own admission, Governor Lowe expects to see an ‘extended period of low interest rates and that means that there will continue to be upward pressure on house prices as investors hunt far and wide for yield and capital growth.
That said, Lowe still feels there are some areas that will keep a bit of a lid on property. The main concern still appears to be the fallout from the Hayne Royal Commission and what that has done to lending standards, particularly for businesses.
As Lowe said in his statement, ‘credit conditions, especially for small and medium-sized businesses, remain tight’ and the flow-on effect to the broader economy is a reason for concern.
While many home loan lenders are doing their best to free up credit, there are still many hurdles investors are facing. That was also made clear by Lowe in his statement.
“New dwelling activity has weakened and growth in housing credit remains low,” he said.
“Demand for credit by investors is subdued.”
When we look closely at the state of the property markets across Australia, it is clear that it remains a tale of two economies.
Melbourne and Sydney are running along at a rapid pace, while Canberra and Tasmania remain very strong. But it’s Perth and Darwin who are feeling most of the effects of the current state of the economy.
While monetary policy is trying to tackle the worries in the economy, it looks that Sydney and Melbourne will again be the beneficiaries of the RBA’s actions.
It seems that investors and owner-occupiers are getting concerned that they could be missing out on the small dip in prices that we have seen to date in NSW and Victoria.
At this rate, prices in those states will be back above their 2017 highs within the next 12-months which will be a positive for the property market as a whole.
There is little doubt the RBA is giving a boost to property markets and Sydney and Melbourne are capitalising. The question will now be whether or not the mining states will be able to turn things around as well.