Property Observer- Six ways interest rates will impact the housing market.
8th February, 2015- The Reserve Bank's (RBA) interest rate cut last week will have far reaching implications across the board for both home owners and investors.
Here are the six main changes that will be put in to motion with a cut from the RBA last week.
1. INVESTOR BOOM TO CONTINUE
As money becomes cheaper, it becomes more appealing for investors to buy in to property and using the depreciation benefits off owning a property to their advantage.
Expect to see further investors snapping up blue-chip properties that most commonly are reserved for first home buyers as they will be happy to bank on the capital appreciation and can afford the off-set from the loss.
2. FIRST HOME BUYERS TO START BUYING THEIR PARENTS PRESENTS
Unfortunately, a cut to interest rates, which will fuel further interest from the investor market, makes it highly unlikely that first home buyers will be able to compete in blue chip locations for traditional first homes.
Two bedroom homes in prime locations will become tougher to buy and anything that is a corner block with redevelopment potential is almost certain to be purchased by an investor, making it even harder for first home buyers to get in.
Things are likely to get tougher for first home buyers.
3. IT WILL PUT AUSTRALIA BACK IN THE 1970'S
Not since the 1970s have Australian's been able to access money so cheaply. The last time a home loan was below 5% (which is where it will fall to with a cash rate of 2.25%) was over 30 years ago.
4. IT WILL (ATTEMPT) TO BUILD CONSUMER CONFIDENCE
An underlying reason the government wants to cut rates is to have consumers start spending again, and if money is cheaper than ever before it may encourage people to take further risks and start putting money in to the economy, however, so far this hasn't worked, and it seems the RBA may push this as low as it can go to encourage spending, which so far is minimal.
It will attempt to encourage consumer spending on goods and services.
5. IT SHOULD KEEP UNEMPLOYMENT STABLE, OR LOWER IT
Most likely an interest rate cut in its bravest attempt will encourage consumer spending, and if consumer spending picks up, it's easy to see more jobs becoming available and the economy picking up.
This will be heavily dependant on a surge in consumer spending rather than further saving.
6. IT WILL START TALK OF A BUBBLE
Expect a heap of people to say that now money is so cheap, and people are able to buy so easily, property prices are going to sky rocket to an unsustainable level, causing a bubble.
This will be a serious concern for the RBA, but they obviously feel that there is still room to move in the pricing of the housing market, and it is not overpriced currently.
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