Amidst rising speculation that interest rates are set to fall further, the RBA chose to hold firm this month, keeping the cash rate at the record low setting of 0.25%. Such a low setting for interest rates, along with policies aimed at ensuring liquidity across financial markets, has been a key factor in supporting housing market activity and insulating home values. With owner occupier mortgage rates for new loan originations typically between 2% and 3%, housing finance commitments have surged, and CoreLogic’s estimate of home sales over the September quarter is tracking slightly higher than a year ago. Nationally, housing values are down 2.1% since peaking in April. However, the most recent trend is showing the market is stabilising, and outside of Sydney and Melbourne, housing values have nudged higher.
The hold decision comes on the same day the federal government is set to announce both an unprecedented level of government debt, as well as additional stimulus measures aimed at supporting jobs growth, consumption and improving productivity. The focus now will be on whether the stimulus measures announced in the budget tonight are enough to offset the tapering of JobKeeper and the effect of higher mortgage arrears as home loan repayment deferrals become less prevalent.
With the cash rate and mortgage rates set to remain low or reduce even further, prospective home buyers are likely to feel more confident in making high commitment purchasing decisions, such as property. Government incentives, such as the first home loan deposit guarantee, the first home buyers grant and the HomeBuilder grant, along with state based incentives such as stamp duty discounts, have supported greater levels of participation from first home buyers, while existing mortgage holders have been shopping around for the best mortgage rates fuelling a surge in refinancing.