The fallout of the interest rate cut.

You may have heard, but if you thought interest rates couldn't get any lower, and that the demand for property couldn't get any greater, you were wrong. The RBA has today come out and cut rates yet again, having them sit at a record low of 2 percent. What impact will this have on the market and what outcomes will there be from it?

House prices to boom, again.

The cut in rates will provide further encouragement for people to buy back in to residential property. The low rates mean that not only will people almost find it more affordable to buy instead of rent, we can expect a lot of people to further look at investment properties as a way to spend their savings. Home prices are expected to increase as a result of the decrease in rates, as buying property becomes even more attractive and this will only increase the demand.

Demand to hit all time high.

Expect demand to only increase, it is an incredibly good time to be a vendor as prices for vendors are expected to increase, and agents expected to push buyers to further heights with the cost of money being low. With low interest rates, expect people being willing to take a larger risk in their maximum price and prices to increase even more so in already booming and developing areas.

Loan applications to be monitored even closer.

With the decrease in rates, more people will look to access money at this time as the cost is so low, with that however comes increased risks by the bank as people will be trying to take out loans in order to get in to the market. Expect the banks to implement even further means testings to ensure that the lender can cover the loan, as well as tighter criteria around certain elements. Loan applicants will have to be able to show they can service the debt with no worries before the money is leant out to them.

A look at interest rates from 1990 - Now. Courtesy of  ABC.  

A look at interest rates from 1990 - Now. Courtesy of ABC. 

An expected easing on unemployment

The overall objective of the RBA is to spark the economy and see investment in the country, both from national and international institutions. The decrease in the cost of money will allow businesses to further expand and take greater risks, which Joe Hockey says will "It will help to further stimulate economic growth and stimulate more jobs

Further to that he states: "I say to the Australian people directly, now is the time to borrow and invest whether you’re a household or small business, now is the time to have a go to borrow some money and to invest"

Chatter to begin about negative gearing and superfund investments. 

As rates continue to be cut, expect people to start putting the heat on other monetary rules such as negative gearing and buying properties in your superfund. People are fearful that negative gearing is building an economy of investors and no home owners, which isn't what people ideally want. People are going to pour the heat back on the RBA to monitor this closely.

AUD to slide down.

A strong reason behind the cut was to decrease the value of the AUD. By doing so it will increase exports and international money coming in to the country which is supposedly good for long term growth. The cuts could see the dollar fall from what has been around the 79c mark down to the 70c mark later in the year. 

What do you think of the result? Was it what you expected?

About the Author:

Todd Schulberg

Todd Schulberg handles all things marketing for - Living and breathing property, Todd has a keen interest in the movements in the market and how agents can utilise new tools and technology in order to be more connected. Using all things social, Todd suggests different ways that agents can engage and think outside the square with their marketing approach.

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