If you had asked most mortgage brokers in the Kwinana area if there was going to be a cash interest rate cut before Christmas, they will have told you “no.” The Reserve Bank of Australia (RBA) has made it quite clear that they intend to keep rates stable for the rest of the year and that movement next year may be in the upward direction if the housing market continues to rebound in Perth and keep “booming” in Sydney and Melbourne.
However, a man named Peter Esho, who is the chief market analyst for Invast, a firm that trades Forex, commodities and indices, predicted that we would see another rate cut before Christmas. So, why did Mr Esho think there would be another rate cut?
Reasons for a Rate Cut
The Consumer Price Index grew 0.5% over the third quarter of this year, which is 1.5% better than Q3 of 2014. That is below the 2%-3% growth the RBA had in mind. This means that the economy isn’t growing as fast as the RBA wants. Traditionally, they lower rates even more as a stimulus.
The Australian dollar (AUD) is also performing better. If it rises above 0.73 US Dollar (USD), the RBA could lower rates to make the AUD drop.
Why We Think He Was Wrong
Since the RBA has stated that they don’t foresee another rate cut in November or December, we took them at their word. Also, while the housing market in Perth has been flat, it is booming in Sydney and Melbourne. Housing is one of the main metrics used by the RBA when determining where to put the cash interest rate.
We see the economy improving enough that the rates will stabilise and eventually begin their inevitable rise.
What it Means to You
Housing prices have remained flat or even gone down one or two percent in the last twelve months, depending upon your suburb. While interest rates tend to cycle between up and down, housing prices usually trend upward with occasional troughs such as the last year in Perth.
What this means is that it is unlikely that you will ever be able to buy a first home or upgrade to a better one for less money than it will cost today. Interest rates are at a record low and housing prices aren’t moving back up yet. Waiting for another rate cut or lower housing prices could cost you thousands of dollars.
Bottom line: if you have the resources to buy, do it now.
To learn more or to get pre-approved for a home loan, call Smartline Rockingham today: (08) 9527 1800.