Australian Housing: Rate cuts to the rescue?

Article by Matthew Hassan, senior economist of Westpac

Interest rates are the dominant force for housing markets
at the moment. However, substantial pent-up demand for
dwellings means an upturn could regain traction without
rates returning to neutral or lower (as seen in 2007).

• Against this, markets appear to have passed a 'tipping point'
that makes it harder to go back, i.e. the cuts required to
stabilise conditions may need to be bigger than the rise that
got us into the current situation.

• On balance, we estimate that at least 100bps in rate cuts
is required to stabilise housing markets but that anything
over 150bps risks stoking a renewed upturn.

Australia’s housing markets continue to take a hit from a sharp rise
in mortgage interest rates and funding constraints resulting from
the dislocation in global credit markets. Housing finance approvals
have slumped 27% in five months, prices have slipped lower and
dwelling construction is poised to fall.

But now the worm has turned on official interest rates. With the
RBA signalling imminent rate cuts the question is: “what reduction
would stabilise the housing market?”

There is little doubt that financial conditions are now the overriding
force in housing markets. The 160bp rise in floating
mortgage rates since August 2007 has taken them to 9.6%, a 16yr
high and an unambiguously ‘tight’ level. The impact is showing
through across every market metric with more weakening likely as
the fallout continues in the months ahead.

MORE HERE (you will need acrobat reader to open it)[/B]

http://westpac.com.au/manage/wrap.n...2c2b/$FILE/er20080814BullAustHousingRates.pdf

 

It now seems likely that the RBA will engage in rate cuts in the very near future- probably a series of smaller ones if you believe everything you read

As for the big banks following suit, well that's another story.....

 

Jacque

I know what you mean but I feel that we still have some negotiating power.

In my case my loans are all full doc and 80% lend or less so if my major lender SG does not pass on the rate cuts I am walking into another lender and will refinance the whole lot.

I already pay more than I have to but I am waiting to see what will happen next month.

Cheers

 

If you have an interest in NZ, their Reserve Bank cut rates a month ago; I think it was 0.5%? Of course, it would be easier to remember the size of the cut if it was passed on by the banks, but it wasn't. ... and Australian banks either own or are most of the NZ banks.

It seems all the press about the RBA stating that the banks have no excuse not to pass on cuts, means that they're not confident the cuts will be passed on either.

Maybe the RBA will cut by 0.5% and we will get 0.25%, and that might be the best we can expect until there's more competition back in the market.

Dave