Yesterday the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points. However, while Property Buyers Australia predicted this rate cut around 8 months ago, it came a little later that originally thought.
Eight months ago we were convinced the RBA would cut interest rates by 25 basis points by September this year…we were out by 2 months. This rate cut is certainly justified given the economic data coming out of the US and Europe AND inflation appears to be under control (within the RBA’s 2 to 3 percent range, depending how you calculate the numbers).
How Will The Rate Cut Impact The Property Market?
In terms of the impact on the property market, the rate cut will help re-install a certain level of confidence with investors. However, from what we’re seeing ‘out on the streets’, most experienced property investors had already factored the rate cut into their calculations so we don’t expect too much will change.
In the areas we’re buying property for our clients, prices began to rise around August this year. In specific suburbs within the Blacktown Local Government Area (LGA) for example, prices have risen by around 8 to 10 percent over the past 12 months – with most of that increase occurring over the past 3 to 4 months. This interest rate cut simply confirms what investors had already predicted.
Where To From Here?
In our humble opinion there will be another rate cut of 25 basis points, probably in the New Year. However it wouldn’t surprise us if the RBA provided another early Christmas present on 6 December.
Assuming there is another rate cut, we believe there is likely to be a ‘mini-property-boom’ in well located property – however times have changed and there has never been a more critical time to ensure you understand the market and be very selective in your property choices. Now is the time to get educated before you act. No longer is it sufficient to buy property with good potential capital growth only. Cash flow is more important than ever and any negative gearing strategy needs to be implemented very carefully with specific objectives in mind. You must have an ‘exit strategy’ in place before you buy.
What About The Banks?
There is increasing competition amongst the ‘big 4’ banks (and others). Don’t ever feel you’re locked-in to one particular bank. Right now is the perfect time to have a good Mortgage Broker review your existing loans. If you are about to take out a mortgage, we highly recommend a good Mortgage Broker over the banks.
A good Mortgage Broker will be able to find the most appropriate loan for you and negotiate the best deal. A word of caution however – all Mortgage Brokers are not the same and we advise you to shop around and ask questions. As property buyers you need to put together a great team and that takes time.