Rush to buy homes before rate cuts send prices soaring
Jacob Shteyman and William Ton |
The Reserve Bank of Australia is odds on to confirm another cash rate cut and buyers are scrambling to get a foothold in the property market before prices rise even further.
As he scoured the market for his dream home, construction worker Joel Pirotta noticed prices rising once interest rates started to fall in February.
With more rate cuts on the horizon, Mr Pirotta heard the clock ticking and pounced on an apartment in Richmond, in Melbourne’s inner-east.
“When I started looking, prices were a lot cheaper for houses. I think there was a rate drop while I was looking and once the interest rates went down, house prices sort of inflated a little bit,” he told AAP.
“I think if anything, it made me want to secure a property quickly, because I knew that I wanted to find a place and I think sooner was more beneficial for me, because I could only see interest rates going down and prices going up.”
Most economists agree.
The consensus view is the RBA will deliver its third interest rate cut in five months when the central bank board emerges from its meeting at 2.30pm AEST on Tuesday.
Economists at Commonwealth Bank, ANZ and NAB predict the the RBA will deliver another cut in August, while Westpac predicts a pause before another cut in November and two more in 2026.
That would send the cash rate to 2.85 per cent and amount to 150 basis points worth of cuts in the space of about 12 months, shaving more than $500 a month in repayments off a typical $600,000 mortgage from before February.
With homebuyers armed with much more purchasing power, demand and prices are set to surge.
Home values rose 1.4 per cent in the June quarter, according to property analytics company Cotality, while auction clearance rates have held above 70 per cent for the past four weeks.
Affordability constraints should keep a lid on growth, but online property marketplace Domain still expects the median house price in Australia will grow six per cent to $1.26 million in 2025/26.
Having bought his new apartment on July 1, Mr Pirotta opted to fix his rate for the first few years of the loan, but will look to refinance once he switches to a variable rate.
But most variable mortgage holders have not decided to lower their repayments, instead opting to pay off more of their loan.
Just one in 10 customers with CommBank, which holds about a quarter of the mortgage market, reduced repayments after the May cut, the bank revealed.
“It shows only a small percentage of customers are freeing up their cash, while most are maintaining higher repayments to get ahead on their loans,” said Tess Sutherland, general manager of the bank’s home buying team.
“We also found that those in their 30s and 40s were the most likely age group to reduce their repayments – perhaps not surprising, given many in this cohort may be juggling school-aged kids and high household costs.”
AAP
