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Interest rates on hold: what does it mean for the property market?

With interest rates on hold for 12 months now, and likely to remain at record lows for some time, property markets are likely to remain reasonably buoyant. But, with new incentives for first-home buyers just coming into effect in some states, the impact for those buyers is less certain.

And the effects will be felt differently around the country.

The Reserve Bank of Australia held the official cash rate at a record low of 1.50 per cent at the August 2017 board meeting.

REINSW president John Cunningham said the cash rate has now been at a record low for 12 months, but home loan rates have moved higher, particularly for investors and for interest-only loans.

“While the RBA has not acted over the last year, there has been considerable activity from the banks,” said Cunningham.

Cunningham said those higher rates have caused the Sydney market to stablise.

“The Sydney property market has settled down after a whirlwind period of growth, but solid competition remains and will continue into the normally strong spring market,” he said.

Cunningham said buyers should be prepared for higher interest rates, “but the outlook remains positive.”

Official interest rates are likely to remain at a record low for at least another year, predicts John Kolenda, Managing Director of 1300 HomeLoan.

Kolenda says the RBA could stay on the sidelines another 12 months.

“Despite some speculation of rate increases over the next year or so,” said Kolenda, the RBA “noted that the impact of the global financial crisis still lingers with sluggish company investment, low wages growth, and weak inflation.”

Kolenda said any future rise in interest rates would have to be made with “extreme caution” due to the repercussions on consumers and the wider economy.

“Future RBA rate movements are likely to be slow and implemented over a protracted period to avoid causing unnecessary shockwaves,” he said.

Kolenda said mortgage holders should be more concerned about the continued out-of-cycle rate movements by the banks.

Laing+Simmons Managing Director and deputy president of the REINSW, Leanne Pilkington, said holding rates steady was the appropriate course of action.

“The RBA has indicated its intention to cautiously manage inflation to the preferred 2-3% range, while at the same time appears reticent to reduce rates further,” she said.

Pilkington said the weak inflation forecast in the June CPI figures suggests rates will stay steady for the short term.

“With employment levels also steady, this is good news for the property market on the whole,” she said.

“After several years of strong price growth, we’re at a steadier stage in the cycle, having thus far avoided the sharp correction many predicted.

“With prices buoyant and clearance rates still encouraging, there is cause for optimism for the housing market as we navigate the traditionally slower winter months.”

Pilkington said she was uncertain about the impact of steady rates on first-home buyers.

“In NSW, the impacts of the recent changes to stamp duty for first homer buyers will be interesting to monitor, particularly when the spring selling season kicks off,” she said.

The RBA will next meet on Tuesday, 5 September 2017.

Source: The Real Estate Conversation


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