Rate cut just months away: Expert

Rate cut just months away: Expert

A rate cut to a new record low is just months away, experts predict, with median house prices expected to fall across five major cities.

Fresh predictions in the latest Finder RBA Cash Rate Survey, out Tuesday, were that median house prices would fall in five major capital cities by the end of 2019 — with Sydney and Melbourne to hit their cheapest levels in four years.

Experts in the survey believed falls of 6 percentage points were yet to come this year for the two biggest capitals — Sydney and Melbourne — on top of the already 11.1 per cent fall Sydney has seen since July 2017 and 7.2 per cent drop Melbourne has had since November 2017.

Brisbane prices was expected to fare best of the five, retreating -1 per cent (-$5,600 to $554,400) by year end, followed by Darwin -1.3 per cent (-$6,370 to $483,630) and Perth -2.9 per cent (-$14,935 to $500,065), according to finder.com.au’s insights manager Grahame Cooke. Adelaide and Hobart meanwhile were expected to continue to see growth.

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“A 6.3 per cent drop in Sydney would see average house prices dip a further $58,000, while a 6.6 per cent drop in Melbourne this time would mean a fall of more than $49,000,” Mr Cooke said. “Remarkably, should these price drops eventuate as forecast, this would make Sydney and Melbourne property the cheapest it has been in four years.”

Mortgage industry expert John Kolenda of Finsure Group was pessimistic about rates, warning pressure was mounting towards a cut — which would be great for borrowers, though a bad sign for the state of the economy.

“This is increasing pressure on the RBA to lower rates, particularly when you weigh up all the negative factors which includes the coming federal election, the response to the final report of the Hayne Royal Commission, the falling property market and external matters such as the US-China trade war and Brexit. There are just too many headwinds at the moment.”

He said banks were already increasing rates independently of the RBA because of funding pressures and consumer confidence was also “lagging”.

“I don’t think they would cut rates during an election campaign, If it does happen it would most likely be in the third quarter, unless there is a material change in the overall economy.”

Rates have not fallen since hitting a record low 1.5 per cent in August 2016.

The comments come as Reserve Bank of Australia Governor Philip Lowe on Tuesday announced the official cash rate would remain at the record 1.5 per cent in February — given low rates were “continuing to support” the economy.

He acknowledged that “credit conditions for some borrowers are tighter than they have been. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased to an annualised pace of 5.5 per cent.”

CoreLogic head of research Tim Lawless and research analyst Cameron Kusher believe the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommendations offered some good news for borrowers — particularly by it not ruling out Household Expenditure Measure “as a valid benchmark for assessing borrower expenses”.

That means “credit availability is not likely to worsen any further” now, a report by the pair said.

“Potentially we are in the early stages of a ‘new normal’ for home lending where borrowers should expect a lot more scrutiny on their expenses and servicing capacity.

“Our macro view is that home values will continue to trend lower through 2019 and into 2020. As housing affordability gradually improves and owner occupiers continue to benefit from lower mortgage rates relative to investors, we are likely to see an organic shift towards owner occupiers comprising a larger share of the market.”

There was some other good news off the release of the Royal Commission’s 76 recommendations, with analysis firm Moody’s noting it removed some negative pressure from the housing market — specifically off its decision “not to tighten lending criteria”.

It warned “housing credit growth continues to fall from the high levels experienced during 2013-2017, with the value of total new lending falling 8.2 per cent in the 12-months to November 2018. This reflects both macro-prudential measures and the highly leveraged nature of households”.

Ratecity.com.au research director Sally Tindall said “the serviceability clampdown will have scared some people out of refinancing” already.

Refinancing of home loans was down 3.2 per cent year-on-year in latest Australian Bureau of Statistics data for November — even though the average borrower could save $77,340 over the life of their loan if they switched to a lower rate, Ms Tindall said.


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