RBA Governor Philip Lowe released a statement blaming a weak economy for the decision to cut rates to just 1%, the lowest since the central bank was established in 1959.
The Reserve Bank of Australia has cut its official interest rate for the second time in just four weeks by a further 25 basis points – or 0.25% – to a record low of 1%, a move that will save typical borrowers at least $70 a month.
The latest rate cut was the first time since 2012 the RBA has cut interest rates in consecutive months, with experts refusing to rule out the prospect of more in the near future.
“Over the year to the March quarter, the Australian economy grew at a below-trend 1.8%. Consumption growth has been subdued, weighed down by a protracted period of low-income growth and declining housing prices,” said Lowe.
“The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income is expected to support spending.”
Despite still being down over the past 12 months, it appears last month’s rate cut from the RBA has already had an impact on the property market with overall dwelling values increasing in both Sydney and Melbourne.
Sydney values rose by 0.1% – their first increase since June 2017 – with the value of apartments rising 0.3% throughout the month. House prices remained flat.
Meanwhile in Melbourne, values lifted by 0.2% thanks to a 0.1% price rise in houses and a jump of 0.5% in apartment prices.
Although these results are certainly positive, we shouldn’t forget the fact that since their peak in 2017, Sydney values have gone through their largest correction since the recession all the way back in 1982.
According to CoreLogic’s Tim Lawless, several factors such as continued population growth in Sydney and Melbourne and the re-election of the Liberal government were contributing to the current stability in the property market.
“Stability within the federal government, along with the removal of uncertainty surrounding changes to negative gearing and capital gains tax discounts, has brought about increased certainty and boosted confidence in the housing market,” said Lawless.
To expect the Australian property market to quickly return to its position of strength it had in 2017 would be naïve; the pace it which home prices were growing in that time will probably never be seen again.
But as the current property market begins to gain momentum, experts are saying that a substantial turnaround is on the cards.
CoreLogic reports that auction clearance rates hit 78.2% from 552 auctions listed in Sydney over the weekend, while Melbourne achieved similarly positive results with a clearance rate of 70.3% across 388 auctions.
While there were fewer homes on the market this weekend because of the school holidays, this was the fourth week in a row national auction clearance rates jumped above 60% – a big improvement from when they were hovering around 40% during 2017/18.
“It’s a real recovery,” said SQM Research’s Louis Christopher, who believes conditions are set to improve despite only a low volume of properties on the market.
“The reason why we’re seeing the pick up in clearance rates is that there are more buyers out there due to cuts in interest rates, the surprise Coalition win and the loosening of credit restrictions by APRA.
“All this is enough to boost the property market. It’s created a trigger for a turnaround,” said Christopher.
AMP Capital’s chief economist Shane Oliver believes a combination of the May election result would’ve brought hope back to investors while subsequent tax cuts would boost sentiment in the market even if their effects were yet to be seen.
Oliver also considers auction clearance rates from week to week to be one of the best guides as to the state of the market, and that the recent good results highlights the impact of positive news.
“The fact that clearance rates have moved up from 45% from last year to now around the mid 60% range, that is suggesting house price momentum will start to improve.
“Whether they will take off again to the same degree as they have in the past is a different matter,” said Oliver. “I tend to think they probably won’t.”