In a move that is good news for home buyers, the Reserve Bank of Australia has lowered the cash rate by 25 basis points to just 1.00 per cent; historically, the lowest rate ever, which follows a similar reduction last month.
The RBA says this easing of monetary policy aims to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.
Some economists are predicting another one or even two more rate cuts this year to as low as 0.5 per cent.
RBA Governor Philip Lowe warned that the June rate cut, the first in almost three years, may not be enough to “move the needle” on weak economic growth.
The RBA says that conditions in most housing markets remain soft, although there are some tentative signs that prices are now stabilising in Sydney and Melbourne.
Growth in housing credit has also stabilised recently. Demand for credit by investors continues to be subdued and credit conditions, especially for small and medium-sized businesses, remain tight.
Another positive result for home buyers is the strong competition amongst lenders to attract borrowers of high credit quality, providing even more bargaining power.
There’s no doubt that now is an ideal time to buy property, with an easing of property values in most major centres and home loan interest rates at record lows. Also, it’s unlikely that interest rates will rise significantly any time soon so affordability has never been better in the medium term.
The downside, however, is those on fixed incomes will be hardest hit: the roughly three million people in Australia who rely on interest rates from their savings to pay their bills. An estimated one million people are very reliant on interest on their savings, and will probably have to dip into their capital to get by.
Underpinning housing affordability is that employment growth has continued to be strong. With labour force participation is at a record level, despite the unemployment rate having risen slightly to 5.2 per cent.