RBA Rate Cut to Fuel Further Price Growth

Even before the RBA decided to cut rates at their recent meeting, property prices had already started to rebound.

The latest data from CoreLogic indicates that property prices across the country rose 0.4 per cent in October and have now clearly started to rebound.

The cut from the RBA that now takes the cash rate to 0.1 per cent, down from 0.25 per cent, is just some more fuel on the fire.

In reality, as soon as the RBA began hinting at a possible rate cut earlier in October, the signs that property prices were already moving were in place. In September, six of the eight capital cities had recorded price rises, with only Sydney and Melbourne holding things back. In October, all cities bar Melbourne, who is only now finding its way out of lockdown, recorded capital growth.

Across the country, it was the smaller capital cities of Hobart, Canberra, Darwin and Adelaide that all increased in value by more than 1 per cent last month.

Source: Corelogic housing data

Interestingly, despite the calls from economists about widespread falls of 30 per cent or more, house values bottomed with losses of just -2.6 per cent and have since started to rebound.

Over the quarter the strong results in many markets are clear with the likes of Darwin up 3.9 per cent, Adelaide 2.0 per cent and Canberra 1.9 per cent.

Even Melbourne, who has seen transactions drop dramatically with the second wave of lockdowns, had prices fall by a mere -2.2 per cent. Since lockdowns have started to ease and businesses are slowly able to get back to work, we’ve seen a surge in new listings and both buyers and sellers looking to transact with plenty of pent up demand.

Another interesting takeaway has been the clear push towards a number of regional areas. In the last month alone, regional prices across the country outperformed the major capital cities, jumping in value by 0.9 per cent compared to the 0.2 per cent gain from the combined capital.

Anecdotally there has been a lot written about the push toward locations that are away from the major CBDs yet still close enough for people to commute to work if required. This has made places like the Mornington Peninsula and the Central Coast particularly attractive in recent months and with listings tight and high demand the obvious flow-on effect will be further price rises.

So how much of these price rises are due to the RBA slashing rates?

In the current environment with mortgage rates at record low levels for most investors, it is now a unique period in our history where a huge portion of properties will be positively geared.

At the same time, the RBA has made it clear that they will be leaving rates low and not hiking for at least another 2-3 years. While in many areas of the country outside of the major CBDs, there is also pressure on rents to increase, thanks to an influx of expats returning home to ride out the COVID storm.

All this points to further price pressure in the months and years ahead. There certainly could be some hurdles to overcome as the likes of JobKeeper wind back in March next year and it’s for that reason that the RBA won’t be taking their foot off the accelerator for a number of years.

RBA Governor Lowe has made it clear that he isn’t too worried if low interest rates inflate property prices. For Lowe, it appears as though it is the price he must pay to keep the national economy strong.

For property investors, this is a unique time in history where both the RBA and Federal Government are doing everything in their power to encourage people to borrow and spend.

If you use this opportunity wisely and invest in property, it could be a once in a lifetime opportunity to capitalise on the type of conditions that we will likely never see again.

Rowan Crosby is a Research Contributor at Wealthi. He is a published Australian journalist with opinions on Australian real estate, worldwide stock markets and commodities. Rowan has a particular interest in small-scale property development and investing.