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Analysis: Here comes support for housing market

Adam Zuchetti
Adam Zuchetti
08 January 2019 2 minute readShare
Stethoscope, house, doctor, lifeline, support

The announcement by a bank that it will cut interest rates for new loans to owner-occupiers may signal the start of more measures to support the housing market and stem property price declines.

Commonwealth Bank-owned Bankwest has announced an immediate cut of 16 basis points to the interest rate it offers to owner-occupiers on all new loan applications.

The cut takes effect immediately and will be available on both variable and fixed rate loans.

Just four months ago, three of the four major banks and a number of other lenders hiked interest rates for their existing customers, which saw consumer confidence take a noticeable hit.

Bankwest’s move to try and entice new borrowers follows APRA’s decision last month to loosen its grip on lending restrictions for investors (namely, the cap on lenders issuing interest-only loans) — the very measure it had introduced to reduce the number of investors in the market and with it put downward pressure on runaway property values in Australia’s two largest cities.

It’s no secret that housing prices are now sluggish, led by significant falls in Sydney, Melbourne and Perth (while other, smaller, markets are posting modest price gains — with the exception of Hobart and Tasmania which are currently booming).

But the bigger picture has plenty of people getting restless. Reports that Australian property prices are on track to eclipse the GFC-induced falls have economists, speculators and the government — the latter, of course, being just months out from an election for which it is already behind in the polls — concerned.

Those concerns centre around the idea that, with no end in sight, values will continue to drift south and take the national economy with them.

After all, the economy already looks fragile as it is. Inflation remains below target at just 1.9 per cent, while wage growth has underperformed for several years. Add to that the aforementioned federal election (and the NSW state election in March), which is likely to see consumer and business spending restrained until it is clear who forms government and with what policies.

The real clincher, though, will be whether Australians spent up big at the shops over the Christmas/New Year period. Strong retail sales in the lead-up to Christmas and at Boxing Day sales will buy the Reserve Bank time to let property prices run their course a bit longer (and perhaps bottom out on their own) and see out the pre-election spending freeze.

But if there is a shocker, with flat or even declining sales, then the RBA will likely have no choice but to intervene and cut rates — sooner rather than later.

However, other regulators, banks and the government will also need to contribute stimulative measures to encourage people to open their wallets at local businesses and on local properties. And they may do so well before the RBA looks to act.

That means more rate cuts by banks, and not just for new borrowers; moves to encourage banks to lend more money; and the prospect of tax cuts.

As such measures are rolled out, perhaps with increasing earnest, the temptation for would-be property buyers to remove themselves from the sidelines and make a purchase will only grow stronger, and so begins the cycle anew.

Analysis: Here comes support for housing market
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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