Interest rate cut tipped
Prospective homeowners are betting the Reserve Bank cuts interest rates to a record low today despite growing evidence the housing market is accelerating.
Economists and markets are tipping the Reserve Bank will cut official interest rates to 2 per cent today in a bid to boost the non-mining part of the economy.
At 2 per cent, interest rates would be lower than even during the depths of the Great Depression.
A quarter percentage point cut in rates would save a person with a $300,000 mortgage more than $40 a month.
Twenty-three of 27 economists surveyed by Bloomberg expect the Reserve to cut rates while financial markets put it at better than a 50 per cent chance.
The Reserve defied market expectations last month when it held interest rates at 2.25 per cent but since then inflation figures suggest price pressures remain in check across the country.
Homeowners appear to be sure the bank will cut with the number of fixed rate mortgages taken out dropping sharply.
Mortgage Choice chief executive officer John Flavell said less than 18 per cent of loans written last month were for fixed rates.
“This sudden drop in fixed rate demand appears to be caused by the fact that an increasing number of borrowers believe home loan interest rates may fall further over the coming months,” he said.
“This is understandable given that the Reserve Bank of Australia continues to indicate that further easing of monetary policy may be appropriate.”
But a further cut in rates could simply feed into higher house prices, particularly in Sydney, and more activity by investors.
Australian Bureau of Statistics figures yesterday showed a jump in building approvals with apartments over-taking stand alone homes for the first time.
Approvals in WA alone jumped by 18.9 per cent, largely due to a doubling in the number of apartments and units given the green light for construction.
Across the country, more than 1700 approvals were granted for terraces and semi-detached homes at least two storeys high. It was the highest one month number since the bureau started collecting approvals data.
Over the past 12 months, councils have ticked-off the construction of more than 233,000 houses.
But the Reserve will also take note of the latest measuring of manufacturing activity in China which showed the sector contracting.
That would feed into reduced demand, and lower prices, for key Australian commodities such as iron ore.
