RBA rate cuts slowly stimulating housing recovery

According to Bank of America Merrill Lynch Australia economists Saul Eslake and Alex Joiner, the RBA rate cuts over the last have produced a “relatively moderate” recovery. This moderate recovery looks even more moderate when compared to what has happened in previous cycles. Given the level of rate cuts, property prices should have increased a lot more.

When comparing what has happened in this cycle to previous cycles such as January to December 2001 when house prices increased by nearly 37% after the Reserve Bank cut interest rates by 200 basis points (from a cash rate of 6.25% to 4.25%) . Also, when the RBA cut the cash rate by 425 basis points from September 2008 to April 2009 after the GFC (7.25% to 3%) property prices rose 16%. This cycle seems a little lack lustre. While interest rates have dropped by 150 basis points yet property prices are more or less equal to what they were a year ago.

The great news for those looking for Australian property investment advice is that cycles do tend to follow one another. What these means for us is that while property may stagnate and interest rates could come down further, the eventual property boom further down the track could be even greater. It is just a question of how far away that may be. Most property investment advisors will be in agreement that the market has bottomed out and is finally marking turn.