Last Friday Westpac Chief Economist Bill Evans, made a lonesome brave call of a potential cut in rates. He isn’t the first to suggest an interest rate drop, however he is the first of the ‘big four’ to do so, and therefore the announcement carries influence.
However his prediction shouldn’t come as a total surprise. In July, Rate City found 18 out of the 100 lenders they track have already dropped their 3 year ‘fixed’ rate mortgages, and as banks aren’t in the business of gambling, when fixed rates drop, it’s a strong indicator the RBA ‘may’ follow suit.
However Bill’s assessment of an initial 25 basis point drop in December – leading to a full 1% drop in similar increments – may fall a little off the mark. Firstly, the RBA are unlikely to leave an initial cut until December, especially considering they won’t be meeting again till February 2012. If they’re concerned by the retail sector, they will need to cut the rate earlier than this to have any effect on Christmas sales.
Secondly, a 25 basis point drop in rates is unlikely to have much overall effect except perhaps to signal a ‘change in attitude’ by the RBA and stimulate spending. After all, they have no real reason to cut rates outside of cautionary sentiment. We have low unemployment, high wage growth, an upcoming commodity boom on the horizon, and therefore it seems the only barrier has been a lack of consumer confidence (hence why Westpac made the call in the first place). After all, the recent change in mentality to saving rather than spending is surely in the RBA’s best interests?
However if the call is simply to forestall a ‘potential’ kickback from international debt pressures and job losses from small business not benefiting from the mining sector – as Westpac has predicted – we could be looking at an initial larger cut (especially taking into account the banks are in the habit of not passing on the full impact of RBA cuts onto the public.)
No one can foresee the next few months, however it seems safe to assume the market is not going to drop (or ‘correct’) further, and the mere suggestion of an interest rate cut causes instant speculative activity and this will no doubt have an effect on the housing market. (Especially considering there are large numbers of investors with pre-approvals just waiting for the starting gun.)
We should also not forget that we’re now on the downhill walk into the spring ‘buying season’ which naturally results in increased activity from those who have been in winter hibernation.
All said and done however, this weekend shaped up with little difference to previous weeks – a 56% clearance rate, and most deals taking place behind closed doors.
27 Tulip Grove, Cheltenham. You can’t fault the location of this property, or the house itself. However you can find an explanation for the passed in result considering it’s a big 3 bedroom, 2 bathroom property asking a family house price, but situated on a town housed sized 400 sqm block of land with limited outdoor space. Families looking in this price range are more likely to opt for a full block of land which gives options to extend or renovate. The property had been quoted at 730-800K, however it was blatantly clear no one was there to bid. 90% of the crowd had their arms crossed, and the other 10% had hands firmly in pockets! The auctioneer opened on a vendor bid of 730K – however it was obvious no one watching was interested in placing a bid. It passed in with a reserve of 795K
2/492 Kooyong Rd, Caulfield South didn’t fare much better. It was another family sized home sharing a block with no back yard, yet asking a house sized price. It’s also located on a rather busy road which would have deterred a few buyers. The property did present nicely however, and a decent crowd of interested participants turned out. The auction opened on a vendor bid of 790K and was followed by the only genuine bid of 800K offered (despite a lengthy half time break). Post auction negotiation didn’t result in a sale. The reserve was 895K – a good way from the passed in number – and the home is now being offered private sale.
Sold under the hammer
33 Sunnyside Grove, in Bentleigh arguably offered everything a family could desire. A beautiful 4 bedroom plus study Californian bungalow – quoted at 1.030 – 1.130 Mil. About 120 people turned out for the auction and the body language (no hands in pockets or arms crossed) immediately suggested a more positive outcome. Nick Renna – the auctioneer – wasted no time opening the auction on a vendor bud of 1.030Mil. 3 bidders fought it out quickly taking it to its on market price of 1.160Mil. The auction didn’t slow there however, and the final selling price of 1.235Mil would have no doubt seen a smiling vendor.
3/13 Bluff Rd, Elwood stood out for its great location and period featured interior. Located opposite the beach, it attracted a big crowd of onlookers. The one downside which no doubt held the result back, was lack of parking, which would is important to a large proportion of the investor market. Quoted verbally with interest in the mid 500K. The auctioneer made it immediately obvious we had a good way to climb following a starting bid of 500K which he termed being ‘at yesterday’s prices’. The auction had a slow start – however as soon as the agent had got the half time break out the way the event took off. 3 bidders pushed the price to 600K which was where its ‘on market price’ was announced. However 600K was the limit everyone had gone with, and with no competition to push it any higher, it sold for the even figure.
Catherine Cashmore
