Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Tuesday, 3 February 2015

"Rate cut to turbo-charge Sydney house-price growth"

RBA takes action

The Reserve Bank dithers no longer, cutting interest rates by 25bps to just 2.25 percent.

The monetary policy decision had the desired effect on the Aussie dollar, sending the currency plummeting down to just 76.7 cents.

Perhaps the most interesting point to note is that the Reserve was unwilling to cut interest rates unless it saw more than one cut as being necessary.

Therefore this is perhaps unlikely to be seen as a "lone wolf" interest rate cut and we may well see a 2 percent cash rate soon.

Crucially the wording of the release was ultra-dovish suggesting that more interest rate cuts may follow in due course.

This point was not lost on markets which are already pricing another interest rate cut as soon as next month as being more likely than not, albeit marginally.

More than that, markets are pricing in implied yields of below 1.8 percent miles out until the second half of 2016.

This suggests that we are set for a long period of low interest rates ahead.


What then for Sydney housing?

In short, it is going to be another big year for Sydney's property market.

Noted Domain  in its article "interest rate cut to turbo-charge Sydney house-price growth".

"The Reserve Bank's cut in interest rates has prompted speculation from property experts that the Sydney housing market could be in for another boost.

Property prices across the city rose at boom-time levels of 14.1 per cent in the 12 months to December, according to Domain Group's Housing Report.
LJ Hooker national research manager Matthew Tiller said the cut was likely to prompt another uptick in prices.
"This would come on the back of another surge in demand predominantly from investors in the inner-ring suburbs".
Dr. Andrew Wilson noted that only Brisbane showed anything like Sydney's performance in 2014, suggesting that other markets were so much cooler that Australia would benefit from different interest rates for each state!
"Domain Group figures show that the capital city with the highest price growth rate after Sydney was Brisbane at 6.1 per cent in 2014.
"We probably need a state by state interest rate policy as the growth has been so different," he said."

I've made a similar point on many occasions previously - current monetary policy settings are too loose for Sydney's economy, but low interest rates is what we are set for and the housing market will likely now move into overdrive.

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There were a couple of other very interesting releases today on international trade and record building approvals, but, hey, let's save some of the fun for tomorrow!