REIA should stop complaining about interest rates: Terry Ryder

It’s time for the Real Estate Institute of Australia to stop carping about interest rates.

Before every Reserve Bank board meeting, the REIA shovels out its standard media release, depicting teeming millions of little Aussie battlers desperate for the RBA to throw them a bone.

After each RBA decision to leave things on hold comes the mandatory “first-home-buyers-cruelly-let-down-by-heartless-bureaucrats” release.

This week’s effort opined the “dwindling hopes” of home buyers whose pleas for more rate cuts have been shunned by Glenn Stevens and his mates.

There are several points the REIA boffins don’t get:

• Interest rates are already at historically low levels.

• We have probably had the last cut in the current cycle, so get used to it.

• The major lenders take little notice of the official interest rate anyway, so the REIA should be harassing them to cut, not the RBA board.

• The RBA board has a lot more to consider in its decisions than the real estate market, although agents tend to think property is the only factor.

• The link that the REIA appears to see between lower interest rates and rising markets does not exist.

• There’s more to real estate markets than first-home buyers – a lot more.

• We have had eight consecutive quarters of improving affordability, markets are now rising and this is as good as it gets, so give it a rest.

In this week’s “please-help-us-we’re-desperate” press release, REIA president Peter Bushby says that “declining interest rates have been the major contributor to an improvement in housing affordability”.  

I’m not sure that’s true. Lower rates have been a contributor, but equally the decline in prices in 2011 and part of 2012, and the steady rise in average incomes (up about 5% last year) have been just as important in the affordability equation.

Nor are decreasing interest rates the prime catalyst for igniting real estate markets, a myth much cherished by real estate agents. There’s plenty of research, including a recent study by BIS-Shrapnel, showing there is little evidence that interest rate movements and home prices run hand in hand.

The obsession the REIA has with first-home buyers needs adjusting as well. First-time buyers are never, not even at their peak (such as in 2009), a major part in the market. The greatest single force in residential markets is the next-time buyer – i.e. home buyers other than first-home buyers. At any point in time, they comprise the bulk of the market.

The other significant players ignored by agents are investors. Right now, investors are rising, currently comprising about 35% of buyers nationwide.  

Most agents miss this market because they focus all their attention and marketing on home-buyers. Just look at the typical agency house-for-sale advertisement and notice how irrelevant it is to investor buyers.

Right now, real estate agencies have it better than any time in the past three years. They and their institutes should be putting their energies into taking advantage.

Terry Ryder is the founder of hotspotting.com.au