May 13, 2013
by Antony Bucello & Catherine Cashmore from National Property Buyers - 13 May 2013
Once again the drop in interest rates has been promoted widely as “good news” for the housing market, with Wayne Swan taking ample credit as he attempts to persuade public ears that record low rates are solely down to “responsible” fiscal policy.
In a brief break with tradition, Nab was the first to pass on the cut in full, followed closely by CBA, St George and Westpac. ANZ delayed announcement until after their monthly review, and then surprised all by cutting in excess of the RBA – dropping its standard variable rate by 27 basis points. Albeit, mortgage rates are still above that experienced during the height of the GFC – with banks calling the tune on the ‘shaved’ percentage they’ve decided to pass on over the interim.
As we've mentioned previously, although it may seem logical to assume lending rates initiate price changes, other economic factors play a far greater influence, and unless the needed ingredients are combined, interest rates on their own can do little to change the terrain by any significant, sustainable degree.
Since November 2011 we’ve had seven drops to the cash rate – passed on ‘in part’ by the banks, however, it took until mid 2012 for any marginal improvement in median values to emerge (principally boosted by consumer confidence,) and only recently have we seen any substantial uptick.
As we’ve indicated in previous updates, the improved environment has been noticeable from an anecdotal perspective, with more bodies attending open for inspections and a greater proportion of Auctions now selling ‘under the hammer.’ The latest ABS mortgage lending data for the month of March has also come in higher than expected – with gains led principally by NSW and Victoria.
In total, there was a 5.2 per cent rise (seasonally adjusted) in the number of home loans issued to owner occupiers – however the trend for first home buyers remains on a downward slope – falling as a total percentage to 14.2 from 14.4 in February. Whilst a drop in rates may on the surface bode well for mortgage holders wanting to pay down debt, the bleak reality remains that for savers, many of whom are would-be first-home buyers, the news is not good at all.
RP Data have also recorded strong increases in mortgage activity, with their RMI (residential mortgage index) showing a 6.6 per cent seasonally adjusted increase for the month of March, easing slightly in April, but starting on a ‘strong footing’ for the month of May. However, it’s worth noting the larger percentage has been driven by refinancing. Read more.