Real estate whips to crack if RBA cuts interest rates on Melbourne Cup day

Media release - 7th September, 2012

RBA has adjusted interest rates seven times on Melbourne Cup day since 2002

  • Home listings are up in August compared to the same time last year says industry research
  • Improved affordability is kick-starting first home buyer markets – set to create ripple effect
  • The depth of the real estate market will be tested if the RBA leaves interest rates on hold warns Raine & Horne CEO

It’s shaping as a fascinating rails run for Australian real estate markets this Spring, particularly if the Reserve Bank follows the form guide and cuts official interest rates on the first Tuesday in November.

“In the wake of last Tuesday’s announcement, financial markets have fully priced in the likelihood the RBA will cut interest rates in what is historically the most active quarter for monetary policy moves,” says Angus Raine, CEO, Raine & Horne.

In the last decade, the RBA has twice used its October board meeting to adjust the cash rate prior to the release of the October CPI data, while it has tweaked rates seven times in November.

“The November meeting is considered the most popular month for the RBA to make a move as this gives monetary policy adjustments time to impact the economy, particularly as the board doesn’t meet in January,” says Mr Raine, who also predicts a significant punter backlash against those lenders who don’t abide by the steward’s decision and cut rates too.

In the meantime, Mr Raine is buoyed by SQM Research indicating that listings in some capital cities were up between 6% and 9% in August compared to the same month in 2012.

“This is great news as homes for sale were a bit light on a month ago, and this result indicates homeowner confidence is improving,” says Mr Raine, who attributes improved listings to an unseasonably warm start to Spring and lifestyle and family-related changes.

“At the same time, buyer confidence appears to be responding to improved housing affordability.”

The June quarter edition of the Adelaide Bank/REIA Housing Affordability Report found that affordability across Australia has improved slightly since the same period last year.

Median weekly family income is now $1,560, according to the report, compared to $1,493 in the June Quarter 2011. The average monthly loan repayment is $2,155 compared to $2,290 in the June Quarter 2011.  

As a consequence, the number of loans to first home buyers increased by 5.9% to 25,101 for the June quarter 2012, and by 11.8% compared to the June quarter of the previous year.

“First home buyer activity is excellent news and should start to create a ripple effect of activity in upgrader and downsizer markets,” says Mr Raine.

However, Mr Raine warns there are a number of factors which need to converge to ensure homeowner expectation meets buyer demand.

“Many budding upgraders and downsizers were spooked five years ago by the GFC and have been sitting on their hands ever since, and as a result the demand bucket has been filling.

“The demand bucket is now at a tipping point and a rate cut in November, or earlier, could prove the trigger which encourages more buyers into the market to snap up the additional homes for sale.”

As a consequence, Mr Raine cautions that if interest rates don’t fall this Spring, higher listing volumes will test the market.

“A decision to leave rates on hold before Christmas will test not only real estate confidence, but broader economic confidence, so I’m urging the RBA to consider a rate cut before we hit Summer,” warns Mr Raine.

“That said, there’s an old real estate saying that it only takes one committed buyer or investor to secure a sale.”

-ENDS-

For further media information please contact:

Angus Raine, CEO Raine & Horne on 0409 920 697

Andrew Harrington, National Marketing & Communications Co-ordinator on 02 9258 5400