While some pundits said that the RBA poured cold-water on back-to-back rate cuts for mortgage holders, there is also an alternate viewpoint. When the Reserve Bank of Australia (RBA) holds interest rates steady, it generally provides stability to the real estate market, but the impact can be complex.
Like many people involved in real estate industry, all indications pointed to a rate cut.
Megan Williams, Principal at Jordans Crossing Real Estate in Bundanoon, thought like many other businesspeople that a rate cut was on the cards:
“I am very surprised by the announcement, particularly given the near certainty from all economic pundits that a rate cut was coming! “she said.
“The two rate cuts previously passed on continue to stabilise the market and buyer confidence is steady with properties continuing to turnover. We are still heading in the right direction for future rate cuts so don’t feel today’s decision will have a negative impact.” said Megan confidently.
The RBA Board said while inflation was falling, it wanted to wait for “a little more information” before moving on rates.
“Uncertainty in the world economy remains elevated,” the Board wrote in its statement.
“With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5% on a sustainable basis,” the statement read.
The Board voted 6-3 in favour of the hold.
Commenting on the Board’s decision, local real estate executive: Di Jones Real Estate’s Craig Symons, said it appears that global economic uncertainty and the yet to be released quarterly CPI data has influenced the RBA’s decision to be cautious.
“We are not economists, but we feel the trend may already be in place to see buyers returning in greater numbers to The Highlands. We appear to be in the right environment for further interest rate cuts.” Craig explained.
“While a rate hold doesn’t directly stimulate growth, it can be seen as a positive signal for buyer confidence and borrowing capacity, particularly if the market has been anticipating a cut. However, the absence of a rate cut might also mean continued challenges in affordability for some buyers. “ he added.
A rate hold has the potential to instil confidence in the market, encouraging potential buyers and investors to move forward with their plans, especially if they were expecting a rate increase. While not directly increasing borrowing capacity like a rate cut would, holding steady means that existing loan rates remain unchanged, allowing borrowers to continue servicing their existing loans and potentially maintain their borrowing power.
Real estate investors may see a rate hold as a positive sign, particularly if rental yields remain strong, as it indicates a stable market for rental income and property values.
A rate hold is not necessarily a negative for the real estate market, but its impact depends on various factors, including the overall economic conditions, buyer sentiment, and the specific dynamics of the local market. It’s crucial for buyers, sellers, and investors to carefully consider these factors and make informed decisions based on their individual circumstances and risk tolerance.
I guess we will have to hold our breath until the next meeting of the RBA Board in August!
* Sources include RBA statement, REA, SMH & ABC, Craig Symons Di Jones, Megan Williams Jordans Crossing