Whiterock Estate, QLD
As most with an eye on the property market would know, the Reserve Bank of Australia cut interest rates for the first time in 5 years. Dropping by 0.25 percentage points to 4.1 per cent, this move marks a significant moment for buyers and the property market.
While this might not drive everyone to purchase a home right away, early expert predictions say it will lead to significant changes in buyer sentiment and trust within the market. This shift is supported by Domain whose data showed a 13% increase in enquiries in the lead-up to the announcement.
Former UDIA President and Intrapac CEO, Max Shifman shared his uniquely-placed expertise to discuss what this move means for the industry.
The Immediate Impact on Buyer Confidence
“Any reduction in the headline interest rate is a net positive for buyer confidence as we now know that we have passed the top of the rate hike cycle,” notes Max.
“Many potential buyers will have been sitting on the sidelines until they could be sure that we had reached the top of the interest rate hiking cycle. Those buyers will now step up their hunt knowing they will have a few years ahead where rates are more likely to get more affordable.”
However, Max also cautions that the RBA has indicated only a few further drops should be expected over the coming year, meaning affordability improvements will be gradual.
What This Means for Home Buyers
Lower interest rates give buyers greater borrowing capacity and confidence. According to CoreLogic, this cut is expected to improve the average borrowing capacity by $13,000.
However, as Max stresses, “When the cost of building the average new home has grown by nearly $150,000 since 2020, we’ll need more rate drops to see a significant offsetting impact.”
Additionally, early interest will likely lean towards the established housing market.
“We’ll see the initial boost skew towards established homses. As their prices begin to grow and scarcity increases, that will stimulate more interest in new housing projects.”
Impact on the Property Development Sector
From a land development perspective, this rate cut signals the beginning of a potential market shift. While buyer enquiries are expected to increase, sales growth may take longer to materialise.
“Years of high inflation have significantly increased development costs, and many buyers have yet to adjust their price expectations accordingly,” explains Max.
“The full impact of this rate cut will likely take time to filter through to the new home market. The first cut was always going to stimulate enquiry, but I think it’s early days. We won’t likely see that translate to significant sales for some time yet.”
Broader Economic and Political Implications
While unlikely to directly influence budget allocations, with the impending federal election and budget announcements on the horizon, it’s clear that housing policy will remain a core issue.
“Housing is going to be one of the biggest issues in Federal and State elections for the foreseeable future. I expect an increasing focus on fixing new supply and stimulus in demand which should boost things mid-term,” says Max.
Both major political parties have differing priorities in their housing policies, with Federal Labor focusing on social and affordable housing in urban areas and the Coalition emphasising broader-scale market housing supply through greenfield infrastructure development.
“I don’t think there is any specific link between the RBA’s decision and the housing policies from the major political parties. But they do have some key differences in their housing policy priorities,” Max explains.
Whiterock Estate, QLD
Broader Economic and Political Implications
While unlikely to directly influence budget allocations, with the impending federal election and budget announcements on the horizon, it’s clear that housing policy will remain a core issue.
“Housing is going to be one of the biggest issues in Federal and State elections for the foreseeable future. I expect an increasing focus on fixing new supply and stimulus in demand which should boost things mid-term,” says Max.
Both major political parties have differing priorities in their housing policies, with Federal Labor focusing on social and affordable housing in urban areas and the Coalition emphasising broader-scale market housing supply through greenfield infrastructure development.
“I don’t think there is any specific link between the RBA’s decision and the housing policies from the major political parties. But they do have some key differences in their housing policy priorities,” Max explains.
“The only things that can really begin to reduce the cost of new housing is to have governments hone in on all the things that increase building costs and actually reduce them, whether across timeframes, regulations, material costs, land availability, taxation.”
While the RBA’s rate cut is a welcome development for the housing market, its full effects will take time to unfold. A combination of further rate reductions, government intervention, and industry adaptation will be required to see substantial improvements in affordability and supply.
As the political and economic landscape evolves, housing will remain at the forefront of policy discussions, shaping the future of home ownership in Australia.