RBA cuts rates to new record low: LJ Hooker's Matthew Tiller

EXPERT OBSERVER

Today, for the first time in 34 months, the Reserve Bank of Australia (RBA) decided to reduce the official cash rate by 25 basis points to 1.25 per cent. This represents the lowest cash rate on record and is the first time since August 2016 that the RBA board has shifted rates.

Why did they cut?

Despite the current strength of employment markets, the outlook for the Australian economy has softened. In addition, an escalation in the trade war between the US and China combined with the ongoing delay and dispute over Brexit has increased headwinds for global economic growth. The domestic economy has seen inflation track well below the RBA’s target of 2-3 per cent for some time, with low levels of household spending, soft wage growth, a slump in dwelling approvals and resistance from banks to lend all driving today’s RBA decision.

What it means for property markets?

Today’s interest rate decision, if passed on in full by the banks, will assist mortgage holders and encourage buyers that have disengaged from the property market to re-evaluate their situation. The past few weeks have seen buyers re-engage with enquiries and attendance at open homes both lifting. The increase in confidence comes off-the-back of the Coalition win at the federal election, ensuring there are no changes to negative gearing or capital gains tax concessions for property investors.

In addition, a new first home buyers deposit scheme, announced prior to the election, and the relaxation of finance restrictions by banking regulators provides a positive outlook for property markets leading into the second half of the year.

For property buyers

Today’s RBA decision along with the recent announcement by APRA that they are looking to relax lending restrictions, should help lift mortgage affordability. This will help up-sizers, down-sizers, investors and first home buyers re-engage with property markets after a period of indecision and uncertainly.

For property sellers

Today’s RBA decision bodes well for property owners looking to sell in the second half of 2019. The past two weeks has seen demand from buyers increase and a reduction in interest will help drive increased attendance at open homes and buyer enquiry levels. Despite higher levels of interest from buyers, the number of properties coming onto the market for sale has yet to rise to meet this demand. This will help drive competition for well-located and accurately priced properties that are listed for sale over coming months.

MATHEW TILLER is the Head of Research at LJ Hooker