The Reserve Bank of Australia yesterday cut the offical cash rate by 25 basis points to a record low. The major banks have passed on a portion of the cut, though not the full amount.

REIA President, Neville Sanders, said, “With an official interest rate of just 1.50%, home owners can expect a saving of $20 in monthly payments for each $100,000 of borrowings. For those with a mortgage of $500,000, the RBA Board’s decision means a saving of $100 per month. But it is vital that the lenders pass on this rate cut to borrowers in full.” 

Sanders also said that the rate cut will provide a much needed economic boost. “As well as improving housing affordability a cut in the cash rate will be very important in boosting consumer and business confidence. With recent downgrades in the economic outlook for Australia it is imperative to have a supportive monetary policy to encourage growth,” said Sanders. 

He added that lower rates will continue to support the housing sector, which in turn will strengthen the economy.

“Australia’s property industry has been the main driver of economic growth and increased employment over the last four years in the transition away from a decade-long reliance on mining, and whilst it is expected that the weakening Australian dollar will provide a much needed stimulus to a number of sectors, the full impact of this is still some time away,” said Sanders. 

REIQ Chairman Rob Honeycombe said lower rates will help the Queensland market, which contracted last quarter. “The state’s economy continues to struggle since the resources downturn and we saw the median house price fall almost one per cent in the March quarter,” he said.

“With wages growth virtually nil, inflation low and jobless numbers not moving, people need a little help with mortgage repayments and the general cost of living.”

REINSW President John Cunningham said he expects further rate cuts this year. “The records continue to be set in regard to interest rates and it is now widely speculated that we may see further interest rate falls in 2016,” he said. 

The official cash rate has fallen 325 basis points since November 2011, with the most recent cut of 25 basis points in May.

Master Builders Australia also welcomed the Reserve Bank’s decision. 

Master Builders Australia CEO Wilhelm Harnisch said, “Master Builders endorses the RBA’s view that today’s rate cut represents a low risk of fuelling a house price surge given the additional prudential measures imposed on the banks by the RBA and the tougher lending criteria being applied by the banks themselves. 

“The rate cut will help maintain confidence in the new housing market which has been a ray of sunshine in the economy, particularly in sustaining employment,” he said.

“The rate cut should give new home buyers the confidence to enter into home ownership with the prospects of interest rates remaining at current levels for the foreseeable future,” Harnisch said. 

The Housing Industry Association Chief Economist Dr Harley Dale said, “Against the backdrop of a very weak inflationary pulse for the Australian economy and heightened concerns about the global economic outlook, the RBA Board decided to provide the Australian economy with a further dose of rate cut medicine,” but added, “there is not much fuel left in the rate cut tank.”

Dr Dale said the rate cut would cushion any fallout from the slowdown in construction. “The prospects for an orderly decline in new home construction over the next 12 months are aided by today’s RBA decision,” he said.

Dale dismissed concerns the rate cut will fuel further price rises in already-strong property markets. “There will inevitably be some speculation of a resurgence in existing property price growth in some Australian markets, but it is unlikely that today’s interest rate decision will unleash another wave of frothy demand,” concluded Dr Dale.

Low interest rates are already causing prices to rise rapidly in the Sydney and Melbourne markets. Low rates tend to encourage buyers to buy before putting their existing property on the market, Andrew Hayne of Marshall White told The Australian Financial Review.

"[The rate cut] will deprive the market of stock because people will hold off selling until they've bought. That's the catch," he said.

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