The RBA announced at an emergency meeting Thursday it would drop the cash rate to an unprecedented 0.25 per cent but housing experts said the move would provide a long-term boost for the market rather than a quick energy hit.
SQM Research director Louis Christopher said interest rates had a history of pushing up prices but the effect of the latest stimulus would only be felt once there was more certainty about the COVID-19 pandemic.
“We’ve been hit by a hurricane with this virus, but it will pass and all this stimulus will make a big difference once we’re through the eye of the storm,” Mr Christopher said.
He added loan rates would be “extraordinary” even if banks passed on only part of the savings from Thursday’s cut, which would be enticing for buyers once confidence returned to the market.
“Buyers could get rates in the low twos. This will make a huge difference later but it won’t help much right now,” Mr Christopher said.
The most likely scenario would be short-term weakness in the market until the number of virus cases began to peak and eventually subside. “Then it’s off to races,” Mr Christopher said.
In a statement announcing the cut, Reserve Bank of Australia governor Philip Lowe said the cash rate target would not increase until “progress is made towards full employment” and inflation was within range of 2-3 per cent.
It was the first time a rate cut was announced outside of a regular RBA meeting since 1997. Mr Lowe said the move was necessary due to “financial market volatility” caused by the coronavirus pandemic.
My Housing Market Economist Andrew Wilson said uncertainty and fear were already eroding home buyer confidence and the latest rate cut wouldn’t change that.
“It’s too early for the cut to offset the uncertainty around coronavirus, but once things become more certain it could be different,” he said.
“(For now) buyers will sit on the fence. It’s almost like the slower winter period we usually get in the market has started early.”
CoreLogic head of Australian research Eliza Owen said fewer property transactions wouldn’t mean lower prices.
“People still need a roof over the heads so the housing market is less volatile than shares,” she said.
“It’s not yet clear how this will play out and a lot will depend on unemployment, but a major drop in prices is unlikely.”
Realestate.com.au chief economist Nerida Conisbee said the housing market has remained resilient despite a recent plunge in the share market.
“Search activity is still higher than it was last year and this may be partly because the economic impact of the virus hasn’t been felt yet,” Ms Consibee said.
“Buyers love a rate cut and even though it’s unlikely this will lead to a massive increase in (spending) it will help keep the market stabilised.”
Before the virus outbreak, property prices were expected to grow by double-digit margins in Sydney and Melbourne this year.
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