This morning, largely for my own small-minded recreation, I thought I'd draw up a chart or three to look at the correlation or otherwise between lending for property investment activity in New South Wales and adjustments to the official cash interest rate by the Reserve Bank.
Around the turn of the century was a rocky period for market sentiment as the tech stock or dotcom bubble burst, met by a rapid series of rate cuts from 6.25% to 4.25%, all delivered in the calendar year 2001.
A few observations...
The impact looks less than dramatic in the chart above since the numbers are not inflation-adjusted, but the rolling 12 monthly value of investment lending did increase.
(2) A series of rate cuts between 1996 and 1998 resulted in a material pick-up in property investment loans.
On five separate occasions, then, cuts in the cash rate have resulted in a boost to property investment lending.
The absolutely key point is that credit markets did not dry up during those periods in Australia.
Clearly where an economy falls into recession and credit markets are short-circuited, the outcome is completely different: interest rate cuts delivered fail to rescue real estate markets in the absence of liquidity and the result is likely to be a crash in property prices, such as experienced in the US and parts of the UK during the financial crisis.