The Reserve Bank’s latest rate cut is likely to have the intended effect in Gladstone in Queensland’s coal country, where houses are just becoming affordable again for first-time buyers.
With apartment prices near-halving since the heady 2011-2013 period that drew investors to commodity-dependent towns like Gladstone, young buyers previously priced out of the market would welcome the latest 25-basis-point cut in the central bank’s cash rate, estate agent Bevan Rose said.
“It’s mainly that lower-end market that’s moving,” said Mr Rose, a sales executive with Gladstone Real Estate. “It’s going to respond to it. The phones will start ringing.”
It’s unclear how much further the cut will stimulate the property market, however. Housing is booming – official figures on Tuesday showed dwelling approvals exceeded 200,000 for the first time ever – and many commentators say the marginal benefit of the extra cut will be small. The RBA is certainly hoping the cut does not over-egg the housing market.
“The bank is working with other regulators to assess and contain economic risks that may arise from the housing market,” governor Glenn Stevens said.
So far, things look OK. Dwelling values across Australia’s capital cities have risen 19.6 per cent since interest rates started falling in November 2011 and the stimulus from lower rates has moved through its peak effect on market conditions, said CoreLogic RP Data’s head of research Tim Lawless.
In Sydney, the fastest growing property market, the cut will “instil a bit of confidence” back into the market that slowed in November and December, said Charles Touma, a co-principal of estate agency Belle Property Surry Hills.
Sydney dwelling values rose 1.4 per cent last month, just over the average capital-city gain of 1.3 per cent and half of Melbourne’s 2.7 per cent gain.
“It eliminates the prospect of prices going backwards,” Mr Touma said.
“The rate cut won’t result in a surge in prices but as always, it will stimulate the market.”
There will be plenty for the central bank and economists to watch. Unlike Gladstone, in Melbourne the rate cut was likely to stimulate investors rather than buyers at the lower end of the market, estate agency Jellis Craig director Richard Earle said. “It may give more of a boost . . . because the cost of money is low and rental returns are increasing,” Mr Earle said.
“Those investors will be mums and dads – baby boomers without enough superannuation. Now these investments probably look a little bit more exciting.” But the effect may not be uniform. Dale Alcock, managing director of Perth-based home builder ABN Group, said the key driver of housing was confidence, and a further cut in rates would do little to change that.
“There’s an underlying lack of consumer confidence,” Mr Alcock said ahead of Tuesday’s decision.
“Interest rates are a non-issue at the low level they’re at, so if they’re lower, they’re still a non-issue.”
The past 24 months have seen activity and prices rise in Western Australia, but this has been limited to the lower and middle parts of the market, as it was meeting pent-up demand and had not spread to the higher ends of the market – as would be the case in a genuine housing boom, Mr Alcock said.
“This cycle’s been quite different in that we haven’t seen it go into the upper end of the market,” he said.
That’s more like Gladstone, where Mr Rose is waiting for his phone to ring.
“Town houses and apartments that were going for $300,000 are now selling for something like $155,000,” he said.