There was an audible sigh of relief from property investors when the Reserve Bank of Australia (RBA) cut interest rates at the end of last year and buyer enthusiasm has since perked up. But a prominent East Coast real estate agent says the two rate cuts alone are unlikely to instigate any serious growth in house prices, particularly in the ‘prestige’ sector of the market.
“People are looking for more good news to regain their confidence to buy and sell,” says John McGrath, the chief executive of Sydney-based McGrath Estate Agents. “The underlying demand is there, people are just waiting for the bell to ring and I think there’s a good chance that will happen in the first half of 2012.”
Many potential buyers have been deterred from stepping foot in real estate because of the slide in house prices. Prices remain weak, with capital city values down 4% in the year to October, RP Data figures show. Prices have fallen 3.4% in regional areas. It’s important to note, however, that these figures pre-date the interest rate cuts.
The RBA reduced the benchmark interest rate from 4.75% to 4.25% over two quarter-point cuts in November and December, and many economists expect another interest rate cut in the first three months of 2012.
A two-speed market
But while the rate cuts will help revive sectors of the market, it will take more than just cheaper borrowing costs to heal the dichotomy that has emerged in housing since the onset of the Global Financial Crisis. Lower fixed and variable mortgage rates have helped the market under the $1 million mark and McGrath says this segment is now strong having experienced a noticeable pick-up in first home buyer and investor activity.
But the housing market won’t return to full health until the ‘prestige’ sector improves. Volatile stock markets and global uncertainty have taken their toll on buyers in the market for property priced above $1.5 million and McGrath says buying opportunities above $3 million are now “exceptional”.
He says these lower prices combined with a consistent quarter of stock market improvement will help revive the top-end of the market in 2012.
“The European problems are a big dark cloud and if they’re resolved, I think that will have a much greater positive impact on the actions of buyers than a quarter percentage point rate cut,” he says.
Meanwhile, McGrath says buyer activity has begun to strengthen in some regional markets, particularly those close to major cities. He says blue chip markets like the Gold Coast and Byron Bay, which were both hit hard by the GFC, were also showing definite signs of new activity.
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