State of the real estate market

After the Reserve Bank again recently cut the cash rate by 0.25%, the interest rate is now at its lowest since 1960. However much to the disgust of the public and in a move that also incurred the wrath of our Prime Minister, the big 4 banks decided not to pass the full cut on to the public. NAB refused to pass on any reduction at all and the other three passed on a cut of just 0.10%.

Whilst there has been a national backlash in regards to the banks not passing on rate cuts, those of us with mortgages, and anyone considering entering into one, must remember that nothing is certain. With such a large financial commitment, you always need to account for potential changes to interest rates and make sure your budgeting skills are up to scratch - good budgeting at the time of property purchase can help overcome most fluctuations in interest rates. Despite the banks not passing on the full cut, the ongoing rate reductions are still good news. When combined with petrol prices also being lower than at last year’s peak, the average home owner is enjoying having significantly more disposable income than they did during mid 2008.

Market expectations as at market close on the 7th April 2009 show an expectation that the cash rate will bottom at 2.37 percent in October this year. Just how much of the further anticipated 0.6% cut gets passed on is anyone’s guess however, if this week’s action (or lack thereof) by the banks is any indication, it appears unlikely the full benefit would be passed on. It also seems apparent that gone are the times where we see big cuts by the RBA, it appears they will now be taking a more measured approach to any further rate cuts.

Consumer sentiment figures released this week by Westpac-Melbourne Institute show that during April, sentiment increased by 8.3% to 92.7 points. Although the index remains below 100 points suggesting pessimists still outweigh optimists it is a further positive sign that the market is showing an improvement in health. With news of share price increases, property value increases and an improving Australian dollar over recent weeks it is unsurprising to see a lift in confidence. Looming increases in unemployment are likely to see pessimism in the market outweigh optimism however, it is encouraging to see sentiment improving from its recent low.

Posted by Charles Tarbey on 21/04/2009 at 9:03 AM | Categories:

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