As expected, the Reserve Bank announced on August 2 that they would be cutting the cash rate by 25 basis points – this will put it at 1.5 per cent – the lowest in Australia's history.
Decision makers on the Reserve Bank's board deemed that the change would help drive sustainable growth in the economy and regulate inflation. What effects might this change have on the property market and those looking to buy a home?
The calm after the storm
The property market has been in a volatile state for the past several years, with prices increasing by astronomical amounts and uncertainty reigning. In fact, the Sydney median dwelling value has recently topped $1 million according to CoreLogic RP Data, a figure that shows just how high prices in urban centres have become.
The Reserve Bank's decision to cut the cash rate reveals confidence in the market's stability. This is because interest rate cuts often stimulate demand and increase price growth. Without knowledge of forces keeping prices stable, the Reserve Bank would not have acted as it has.
So, what's keeping prices stable and why is the Reserve Bank so confident? Let's use the Sydney property market as an example of what's going on.
The Reserve Bank's decision to cut the cash rate reveals confidence in the market's stability.
Movements in the Sydney market
As mentioned above, Sydney's property prices have been skyrocketing in recent times . According to QBE data, this trend is about to reverse itself, as both unit and house prices are forecasted to decrease by up to 10 per cent from 2016 to 2018.
As Sydney is the country's most mature market, this could indicate that many Australian cities may experience property price decreases in the near future. This was likely part of the reason behind the Reserve Bank's confidence in cutting rates, and bodes well for property buyers of the future.
A combination of lower interest rates and lower property prices should make real estate more accessible to the average Australian – an exciting prospect after years of continual price increases. Now may just be the perfect time to take the steps toward buying property, as your principal, interest rates and repayments should all be lower. You should get more for your money and be able to pay your mortgage off quicker.
If you're planning to take the property plunge, Mortgageport can help by managing the loan process from approval to full payment, giving you one less thing to worry about.