THE Reserve Bank’s decision to cut interest rates by 0.25% to 4.5% is a step in the right direction, to restoring confidence in the market, according to the Australian Property Institute Queensland president Philip Willington.
Willington said the combination of the sharemarket woes, European debt crisis and natural disasters had caused a crisis in confidence in the residential property market.
He welcomed the RBA’s decision, adding that the rate cut has removed uncertainty in the market which has been lingering for the last 12 months.
This is the first interest rate cut since April 2009, when rates were reduced by 0.25% to 3.0%.
“Previous increases in official interest rates, in conjunction with weak economic conditions throughout most areas of QLD, has led to a reduction in first home buyer activity and softening of property prices.
“Lower interest rates combined with the $10,000 QLD Government grant for new housing may improve affordability in this sector of the market and there is little doubt this joint stimuli will have a positive impact on construction activity and the Queensland economy,” he added.
“Large areas of the Q:D are still suffering from last summer’s devastating floods and Cyclone Yazi. An improvement in confidence amongst buyers as a result of the reduction in interest rates is very positive news for first home buyers and will also greatly assist existing owners.
“This is a positive step across the board for investors and home buyers. Many who have had the attitude ‘will I or won’t I’ might be encouraged to make a decision to purchase a property… It will also give some reprieve for existing home owners, who are suffering from mortgage stress,” he added.
However he said there is a long way to go before the market improves.
Willington said a correction in interest rates cannot solve the problem of affordability.
He added that there are three factors to improve affordability; stable or lower house prices, wages growth of approximately 5% per annum as well another 0.5% cut in interest rates.
“Unless two or three of those factors improve, we are not going to see equilibrium,” he concluded.
Meanwhile the Australian Bureau of Statistics latest House Price Index shows established houses prices fell by 1.2% in the September quarter, following their revised fall of 0.5% in the June quarter.
This is their fourth fall in the past five quarters. In the past year, prices have fallen by 2.2%, as they did in the year to the June quarter.
House prices fell in all capital cities in the quarter, with the range being from -0.2% in Sydney to -2.5% in Brisbane. In the past year, prices have also fallen everywhere, with the range being from -0.3% in Sydney and Hobart to -5.2% in Brisbane.
Project home prices, which only relates to the price of a dwelling excluding any change in land value, fell by 0.2% in the September quarter, the first fall since early 2009, prices are 2.0% higher than a year ago, which is the smallest increase for 10 years. The biggest falls in the quarter were in Brisbane (-1.6%) and Adelaide (-1%).
Australian Property Journal
