'Further rate cuts won’t encourage buyers'

Mortgage Choice chief executive Michael Russell claims we will soon reach a point at which further rate cuts will fail to stimulate demand for property.

Speaking at the release of the group’s half-yearly results in Sydney recently, Mr Russell said further rate cuts are likely to continue stimulating refinance demand but are unlikely to bring forward future buying demand.

“There will be a point where rates will be so low that any further reduction is just not going to stimulate any buying demand,” he said. “We would have to be getting close to that point now.”

Mr Russell said the “only thing” that is stimulating some form of buying demand is customer exposure to low interest rates through constant advertising.

“You can’t turn on the television without seeing a very low interest rate – four point something,” he said.

“That is still stimulating activity. But we will get to a point where it will plateau.”

Of the four major banks, economists from ANZ, CBA and Westpac all expected the cash rate to fall yesterday, while NAB chief economist Alan Oster correctly forecasted no change.

Tim Lawless of CoreLogic RP Data noted that despite the burst of activity generated by the February rate cut, it will likely take some time to see this flow through to a higher rate of capital gain.

“We might not see the lower interest rate environment stimulate the housing market as much as it has in the past,” he said.

“Weaker jobs growth, higher unemployment, declining affordability, low rental yields and political uncertainty are all factors that could dent consumer confidence and provide some counter balance to the rate cuts and quell any additional market exuberance.”

 

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