Dear Client
RBA ANNOUNCES ITS HOTLY ANTICIPATED FEBRUARY CASH RATE
The Reserve Bank of Australia (RBA) has announced a 0.25% cut to the cash rate, bringing it down to 4.10%.
This decision comes with the RBA gaining increased confidence in the trajectory of inflation towards its target range. The latest CPI data shows inflation moving closer to the 2-3% target, but economic growth has slowed, particularly in retail and construction. Rising unemployment and weak consumer spending have led the RBA to ease monetary policy.
The announcement marks the first rate cut since November 2020, when the cash rate was slashed to a historic low of 0.10% to stimulate the pandemic-impacted economy.
It’s also the first overall rate change since November 2023 when rates were raised to 4.35%.
According to Canstar, borrowers with a loan size of $600,000 will see a $92 drop in minimum monthly repayments.
Borrowers with a loan of $750,000 will see a $115 decrease, and a $1,000,000 loan will see repayments fall $154.
The move was widely expected by forecasters and economists nationwide, with Australia’s big four banks – ANZ, Commonwealth Bank, NAB and Westpac – all predicting that the RBA would cut the cash rate by 0.25%.
In Finder’s latest RBA Cash Rate Survey, almost three in four (73%) of the 37 experts surveyed in Australia correctly predicted the cash rate cut in February.
Additionally, 64% of the survey’s respondents said they expect the momentum to carry on throughout the year, with another rate cut forecast in May of this year.
Finder’s head of consumer research, Graham Cooke, highlighted the “record number of households in financial distress” and said the RBA’s cash rate cut would be welcome news to mortgage holders nationwide.
Cooke emphasised that many Australians had delayed their home ownership plans due to persistently high interest rates, and said “many will be breathing a heavy sigh of relief” after the RBA’s decision.
“Many on the prowl, from first home buyers to upgraders, were sidelined as interest rates skyrocketed,” Cooke said.
“With interest rates finally going down, we could see renewed confidence among prospective home buyers.”
CEO of Laing+Simmons and president of the Real Estate Institute of Australia (REIA), Leanne Pilkington, said the move would ease affordability challenges for many Australians.
“The efforts to curb inflation appear to have worked and while the employment market remains strong, the cost of living – especially the cost of housing – means many Australians will welcome relief in the form of a rate cut,” Pilkington said.
REA Group senior economist, Eleanor Creagh, said that the fourth-quarter consumer price index (CPI) confirmed that inflation is moving lower, and added that “underlying inflation has reached its lowest level since December 2021” and is below the RBA’s forecast of 3.4%.
“Although the unemployment rate remains low, the undershoot in inflation has allowed the Reserve Bank to begin its rate-cutting cycle today, with increased confidence that underlying inflation is on track to return sustainably to target,” Creagh remarked.
As a result of the RBA’s decision, Creagh said she expects buyer confidence and borrowing capacities to be boosted by the falling interest rates.
“The price falls seen over the past two months are likely to be short-lived and may reverse with the slight improvement to affordability and buyer confidence driving renewed demand and price growth,” she said.
Nevertheless, Creagh highlighted that housing affordability being at its worst level in three decades could see price uplift be “more muted compared to previous easing cycles” and result in the “pace of home price growth trailing the strong performance of recent years”.
LJ Hooker Group’s head of research, Mathew Tiller, shared that the previous “extended period of high interest rates has heavily and disproportionately affected mortgage householders” and described the cut as being “welcome news, particularly for families who have been feeling the pressure”.
Tiller stated that the RBA is tipped to announce another three rate cuts by the end of 2025, but shared he believes the central bank will act cautiously due to uncertainty around global economics, such as the US reciprocal trade tariffs.
While Tiller said that “it may take a little while for the banks to pass on the cut”, he said the rate cut “is likely to bring an increased activity with buyers looking to refinance or gain pre-approval”.
Looking at the current market, Tiller explained that “sales have been quite buoyant in recent weeks”, and added “today’s announcement should see the price stabilise earlier than expected and activity pick up”.
“With inflation easing and wage growth outpacing it, households will have more disposable income, making it easier to save for deposits and enter the market,” he said.
“Housing affordability and lack of supply will continue to be an issue in some areas, but we expect the lower end of the market will be busy with first-time home buyers and increased investor activity following this much-anticipated move by the RBA,” Tiller concluded.
RBA delivers first cash rate call for 2025: What it means for you – Real Estate Business
LOAN SIZES REACH RECORD HIGH DESPITE SLOWING PRICE GROWTH
New lending data released by the Australian Bureau of Statistics this week shows the number of new loan commitments for housing fell 0.4% in the December quarter 2024, though the total value rose 1.4%.
The data reflects the softer finish to the year. While housing demand remained resilient to persistent affordability constraints in 2024, the pace of home price growth slowed throughout the year, culminating in small falls over the past two months as the softer end to 2024 carried over into the new year.
Although there were fewer loans approved in the final quarter of 2024, over the year to December 2024 the number of new loan commitments for housing rose 7.2% and the total value rose 16.0%, despite slowing from 24.7% year-on-year in the previous quarter.
This mirrors the resilience in housing demand seen throughout the year but also reflects the continued growth in home prices, with more than half of the growth in the value of new lending over the year to December 2024 stemming from higher average loan sizes.
The gain in the value of new loans in the final quarter of 2024 was driven by a 4.2% rise in the value of owner occupier loans. The average owner occupier loan reached an all-time high of $666,000, up $25,000 over the quarter.
The number of loans to owner occupiers rose 2.2% (+1,824 loans) in the December quarter 2024 to sit 4.0% higher year-on-year.
Meanwhile, the value of new loan commitments to investors fell for the first time in almost two years, down 2.9% quarter-on-quarter. This quarterly decline comes off the back of a record high $33.4 billion value of new lending to investors in the September quarter of 2024.
The number of new investor loans also fell 4.5% (-2,293 loans) compared to the previous quarter.
Despite the quarterly fall in the value of new lending to investors, the average loan size reached an all-time high of $674,000, up $25,000 over the quarter and $49,000 over the year.
Over the past year growth in the value of new lending to investors remains robust, up 22.0% year-on-year. The lift in investor activity seen through 2024 has driven this rise, with strong growth in rents and increasing property prices having attracted investors to return to the market.
The value of new housing lending remains 16.0% higher than a year ago despite growth slowing, with a continued uplift in the number of new loans over the past year reflecting the strength in housing market activity in 2024 that defied affordability challenges and the sustained high-interest rate environment.
Growth in home prices and new lending activity slowed in the final months of 2024 as poor affordability, weaker economic conditions, and the sustained higher interest rate environment weighed on would-be buyers.
Looking ahead, market sentiment is likely to shift once more as interest rates move lower.
Many expect that interest rates will begin to move lower in February and the prospect of rate cuts has already boosted sentiment, with Westpac’s latest consumer sentiment survey detailing a lift in consumer house price expectations – up 6.5% in February 2025, which is the first rise since October 2024.
Clearance rates have also strengthened in every capital city in February compared to the final months of 2024 when conditions in the housing market slowed, culminating in the small price falls seen over the past two months.
If the Reserve Bank begins the rate cutting cycle next week, both buyer confidence and borrowing capacities will be boosted as interest rates fall. As a result, the price falls seen over the past two months are likely to be short lived.
Prices are likely to move higher this year as interest rates move lower with the slight improvement to affordability and buyer confidence expected to drive renewed demand and price growth.
However, housing affordability is at the worst level in three decades and that may mean the price uplift could be more muted compared to prior easing cycles.
PropTrack info@proptrack.com 14/2/25
INVESTOR EVENING
Last month, we held our quarterly information session for property owners. We were joined by Hamish from O’Loughlins Lawyers who discussed general advice on Wills, Advanced Care Directives, & Power of Attorneys. It was a very informative session and we hope that those who attended, or who have watched the subsequent link, found some value in the evening.
The next information session will be held in April and we hope to discuss the benefits around Tax Depreciation, just in time for Tax time!
Thank you for your ongoing support!
Regards David, Benjamin & the Team at DB Philpott Real Estate
