Experts believe the Reserve Bank of Australia’s decision to lower the official cash rates from 1.25% to 1.25% is a positive step for property buyers seeking a more affordable market.

Market watchers at Real Estate Institute of Australia (REIA) believe this will stabilize Australia’s housing market, and increase the number of first homebuyers.

Adrian Kelly, president of REIA, stated that this cut, unlike the 2015-2016 cuts, which stimulated the housing market through increased investor activity will stabilize it.

Industry figures show a moderation in the participation of first-home buyers in the market — in the first quarter of 2019, the number of first-home buyers across Australia declined by 11.6% from the preceding year.

Kelly said that the RBA’s action would make this segment of homebuyers more interested in the market, particularly if lenders pass on the rate cut to customers.

This means that every $100,000 borrowed annually will decrease by $250, subject to banks passing on their full cuts. He stated that this means that a first home buyer with an average loan amount $338,000 in March 2019 can save $70 per month.

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Construction sector – Boosting

Darren Cooper, national president of Urban Development Institute of Australia, said the rate reduction along with the Australian Prudential Regulation Authority’s (APRA’s) recent decision by easing serviceability benchmarks as well as the government’s plans to close their deposit gap would get the housing sector moving again.

Market should take the rate cut as an encouraging sign. This will make it easier for homebuyers to finance their homes, and will also encourage more projects from conception to completion. UDIA urges all banks and financial institutions to immediately implement the RBA’s goals for a vibrant economy by acting responsibly.

A rate cut would be beneficial for the construction sector, which is one of the most vital areas. The Australian Bureau of Statistics states that housing construction has been in decline for more than a year. Approvals for detached dwellings have fallen to their lowest level in six decades.

“Housing construction is crucial to Australia’s broader economic and employment fortunes – and without an improvement in sales activity and an impetus for new projects to commence and existing projects to expand, the gap between supply and demand will quickly feed into increased prices once again,” Cooper said.

There are many cuts to choose from

Sarah Hunter, chief economist of BIS Oxford Economics, indicated that it is probable that the RBA’s latest move was just one of a series to be made this year.

Hunter stated that Hunter was not informed by the RBA about Hunter’s decision. The increased risks associated with the global economy was the main reason. RBA remains unsure about the outlook for domestic growth. This is due in part to persistent weakness among households, subdued earnings growth, and sub-2 percent inflation.

“The statement suggests that further cuts are likely to be made in the immediate future. However, the board has indicated their intention of adjusting monetary policy over time in an effort to achieve the inflation target. She stated that she now anticipates a 25bps second-quarter reduction in August because of the shift in stance.

Hunter believes it’s possible that the November central bank cut the cash rate by a third due to external trade disputes. This would lower the cash rate by 0.75%.

Is it possible to get any benefit from a rate decrease?

Experts don’t believe that the rate cut will have any significant impact on Australia’s economy. Vicki Seccombe is the NSW Business Chamber Western NSW regional manger and said that there are reasons why the RBA’s decision may not be significant.

Many small business owners that I spoke with said it’s not the cost of the loan but the difficulty in getting financing. Due to excessive regulation and red tape, banks are less likely to lend to small businesses. “A rate cut won’t change that,” she stated.

Richard Holden, University of New South Wales professor of business, stated that interest rate reductions have proven to be beneficial in the past. They decreased borrowers’ mortgage obligations and thereby boosted their spending power.

He stated that Australia is already in a low-interest-rate environment so a rate reduction would not likely make a difference.

Holden stated that the cut lowers interest rate than the inflation rate. It is possible for money earning interest to lose value.

News.com.au: He stated that this would be their first dip into negative real interest rates.

Chris Richardson of Deloitte Access Economics stated that Australia’s economy is showing moderate growth and doesn’t require immediate support from RBA. He stated that Australia’s ability to defend itself against economic risk would be impaired if rates were reduced.

He said inflation is lower than many people believed. There are signs that the economy is declining and wage growth has slowed. But, we know that tax cuts will be significant. APRA has relaxed its grip on lending. Concerns about the effects on the housing sector from making policy changes have disappeared.