News - 19 Dec, 2019

A year in review: Housing demand increases after rate cuts

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Worldwide, 2019 saw unprecedented rate cuts; and Australia was no exception. Now, as we look back at the cash-rate disruption that marked 2019, we ask: what has been the effect on housing?

This time last year, our cash rate sat at a respectable 1.50%. A level it had been at since August 2016 when the RBA identified the global economy was growing at a “lower than average pace.”

Fast forward to 2019, and this year we have seen three rate cuts – all within the space of five months.


June 2019 – 1.25%

It was mid year that we received our first cut to the official cash rate: the first rate-change in three years.

The cut was of no surprise. Westpac Chief Economist, Bill Evans, had been calling for the RBA to cut rates since February. Numerous economists also predicted the drop.

ANZ was the first major bank to drop rates, before coming under controversy for not passing on the ‘full cut’.

Avoiding ANZ’s mistake, Commonwealth Bank and NAB both passed on the cut in full.

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July 2019 – 1.00%

The second cut of the year – July’s cut also didn’t turn many heads.

In June, RBA Governor, Phillip Lowe, had already warned it would not be “unrealistic” to expect a further reduction to the cash rate.

After facing criticism from the Treasurer, Josh Frydenberg, last month, this time it was ANZ who passed the cut on in full.

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Unlike last time, Commonwealth Bank and NAB both elected to only pass a reduction on to some customers, ignoring earlier advice from the Treasurer.

Prior to the annoucement, Mr Frydenberg expressed that it was his expectation that banks pass any cuts on in full.

“We do expect the banks to pass on in full to the Australian people the benefits of sustained reductions in their funding costs,” he said.

October 2019 – 0.75%

After two months of tireless prediction of – when – it would happen, in October we were met with our final rate cut for the year.

A historic drop to 0.75%, Australia has never seen a cash rate so low.

Despite this, economists are predicting further cuts in the New Year as early as February 2020.

Housing demand on the up

According to data released by the Australian Bureau of Statistics (ABS) on Tuesday, demand for lending is high.

Over October, new loan commitments for housing almost doubled, rising by 2.0% (seasonally adjusted).

However, despite the rise, they’re still lower than their March 2017 peak.

Housing commitments to owner-occupiers also saw a boost.

Experiencing their fifth rise in consecutive months, figures rose by 2.2%.

To put the numbers in perspective, housing commitments to owner-occupiers accounted for $13 billion of the $18.2 billion of the total new mortgage commitments in October.

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Maree Kilroy, an economist at BIS Oxford Economics, believes the sudden rebound is due to looser monetary conditions. She thinks it will impact 2020 housing prices.

“This rebound is being driven by looser monetary conditions, which have enabled the rapid recovery in Sydney and Melbourne house prices,” she said.

” this momentum in the established housing market is expected to see the median house price in Sydney and Melbourne increase by double digits by June 2020.”

The slump is over

Despite predictions of future housing price rises in Sydney and Melbourne, the market pick-up is already here.

Over November, national house prices increased by 1.7%.

Experiencing its fastest pace of rise in over 30 years, Sydney prices rose by 2.7% and Melbourne prices by 2.3%.

According to CoreLogic, house prices are predicted to strengthen over 2020. However, this is expected to be at a slower pace of growth than what we have seen over the second half of 2019.

Words by Kathryn Lee

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