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West Australian
5 days ago
- Business
- West Australian
Interest rate cuts fuel prices but housing boom unlikely: AMP
Australia's housing market is unlikely to experience another price boom in line with the Covid surge as affordability constraints outweigh interest rate cuts. Almost all experts (88%, 30/34) from Finder's RBA Cash Rate Survey believe the RBA will cut the cash rate, bringing it to 3.60 per cent in July. Meanwhile, national house prices are on the rise, on the back of interest rate cuts which are spurring on borrowing capacity with PropTrack showing national home prices rose 0.4 per cent in June and are now up 4.6 per cent on this time last year. But while monthly gains were recorded across almost all the capitals, it might not be quite as bad as the last time the RBA cut rates, when house prices soared nearly 25 per cent in 12 months until 2021. That is the view of AMP chief economist Shane Oliver who told NewsWire 'even worse affordability constraints' would not result in a repeat of the post-Covid price surge. 'It will be more constrained this time around. When we came out of Covid, interest rates went to zero and you could get fixed rates around two per cent and variable rates around three per cent,' he said. 'I don't think we are going to see it this time around 'Affordability was arguably better in 2020 because house prices initially fell a bit. 'So there was super duper low interest rates and prices coming off a dip which is why there was a supercharged rebound in prices. 'This time around we are seeing the normal relationship outside of recessions with lower rates just meaning higher prices and unfortunately worsen the affordability problem.' REA group senior economist Eleanor Creagh agreed, saying house prices won't run as hard as previous cycles. 'Market momentum is building amid renewed buyer confidence and improved sentiment, buoyed by falling interest rates and expectations of another rate cut in July,' she said. 'However, the upturn remains measured as affordability constraints keep the pace of growth in check.' The Reserve Bank of Australia has cut interest rates twice since inflation was contained – in February and May – and is widely forecast to slash the official cash rate on Tuesday following its July board meeting. After a short-lived price reprieve in late 2024, home prices are at peak levels across the country, with Melbourne and Hobart being the exception. Dr Oliver said every 0.25 per cent cut in rates by the central bank adds around $9000 that the average Aussie can borrow. This would theoretically add $27,000 to first-home buyers' borrowing capacity. 'It's a rough guide but it depends on whether people borrow the full amount and how many buyers there are to sellers,' he said. 'But if every borrower has an extra nine grand following every rate cut then it could mean house prices go up by the same amount, it could mean house prices go up by the same amount and is why over time the benefit to home buyers of lower interest rates tends to be lost to higher house prices.' Dr Oliver said rate cuts would likely make things worse for first home buyers if the RBA continues to cut interest rates. 'If we had a more normal property market and the supply of new homes was in line with the growth of the population then lower interest rates at times could help first home time buyers,' he said. 'But in the current environment, when there is an imbalance between demand and supply, it just makes the situation worse.'
Yahoo
18-02-2025
- Business
- Yahoo
Warning over Big Four banks after RBA cuts interest rate: '$10 million every day'
The Reserve Bank of Australia (RBA) surprised nobody today by delivering a 25-basis-point cut, lowering the official cash rate from 4.35 per cent to 4.10 per cent. This marks the first cut since early 2020, following 13 consecutive increases that took rates to their highest level in more than a decade. The key question is whether ANZ, Commonwealth Bank, NAB, and Westpac will pass on the full 0.25 per cent reduction—and how quickly. Collectively, the Big Four hold around $1.5 trillion in owner-occupier loans, according to Finder's analysis of Australian Prudential Regulation Authority (APRA) data. That enormous mortgage portfolio gives them considerable power over how swiftly they implement (or delay) any rate cut. RBA cuts interest rates delivering $1,236 in relief for mortgage holders Centrelink cash boost coming in weeks for millions of Australians ATO cracking down on $557 million scourge fleecing Aussies The RBA's previous cutting cycle, from June 2019 to March 2020, saw a total reduction of 125 basis points (bps) across five cuts. However, the Big Four didn't all follow suit: ANZ passed on 97 bps (77.6 per cent of the cuts), taking an average of 8.6 days NAB passed on 84 bps (67.2 per cent), with an average 12-day wait Westpac passed on 80 bps (64 per cent), averaging a 13-day delay CBA passed on 82 bps (65.6 per cent), taking an average of 20 days In stark contrast, throughout the May 2022 to early 2023 rate-hike phase, the Big Four passed on every single basis point of each increase in as little as 10–14 days. This discrepancy highlights how delaying or withholding parts of a cut can significantly boost the banks' earnings. If just 28 basis points is held back on $1.5 trillion of mortgages, that equates to over $10 million in additional revenue every day. Even short delays of a few days can yield millions of dollars in extra interest. Australian banks have a clear history of quickly passing on rate hikes but moving more slowly when rates fall. Although other factors—like maintaining savings rates—do play a role, it's evident that each bank's profit margins and funding costs shape how much of an RBA cut is eventually passed on to borrowers. In 2019 and 2020, the Big Four's reluctance to implement the full extent of RBA cuts meant many variable-rate borrowers missed out on potential savings, even though some exceptionally low fixed rates (under 2.00 per cent for 4-year terms) were available at the time. Ultimately, every bank has its own balance sheets and profit targets to consider, and they won't lower rates simply out of goodwill. Headline inflation has fallen to 2.4 per cent, safely within the RBA's 2–3 per cent target range. Many experts in Finder's RBA Cash Rate Survey had predicted this cut, arguing that keeping rates too high for too long could risk stifling economic activity. AMP's Shane Oliver believes inflation was easing faster than expected, making a prompt cut critical to prevent a sharper slowdown. Market Economics managing director and Yahoo Finance contributor Stephen Koukoulas went even further, forecasting six cuts this year to safeguard employment and maintain momentum in the broader mortgage holders, the potential impact of this latest reduction is significant. A $640,000 loan could see monthly savings of over $100 if the cut is passed on in full. Those in pricier markets, like Sydney, could benefit even more. With inflation now seemingly under control, the RBA is keen to give households and businesses breathing space to keep the economy on track. With the RBA taking a heavily data-focused stance, the spotlight will remain firmly on upcoming economic indicators—especially inflation figures. For anyone with a home loan, the crucial question is whether ANZ, CBA, NAB, and Westpac will indeed pass on the 25-basis-point cut swiftly and in full, or if we'll see a repeat of partial reductions. Now is an ideal time for borrowers to check their rate and weigh up their options. If your lender doesn't pass on the cut—or drags its feet—it could be worth negotiating for a better deal or exploring refinancing with a competitor. Lenders do want to retain customers who are prepared to shop around, and even a few basis points can make a substantial difference over the life of your mortgage. A new era of lower interest rates should ease pressure on households, but whether that relief arrives in full depends on how generously banks respond. If your current lender isn't playing ball, it may well be time to seek out one that will.
