Following the Reserve Bank of Australia's 0.25% cut to the cash rate, hopes are high that more new homes – and more choice for buyers – will start flowing onto the market.
The recent announcement brings the cash rate to new rate of 3.85% – the lowest Australians have experienced in more than two years.
While it wasn’t the 0.50% cut that many had hoped for, the downward trajectory is nonetheless being taken as a short-term and long-term gain for mortgage holders, Australians currently in the market, as well as those concerned about the state of the nation’s housing affordability.
RBA governor Michele Bullock.
The news the construction industry needed
While it’s true that interest rate cuts generally coincide with rising home prices – due to a boost both in borrowing power and buyer demand – lower rates are also crucial for delivering more supply, by helping developers seek financing for new projects.
The impact of the RBA's recent announcement could have significant implications for developers, as well as buyers considering a new home in the months ahead.
At a time when home building approvals have lingered consistently lower than national targets, it’s more important than ever that this industry sees an easing of pressures.
To meet the nation’s national accord targets Australia should be approving and completing roughly 20,000 homes per month to build 1.2 million new homes over five years. The most recent figures saw just 15,220 approved in March.
REA Group's executive manager of economics, Angus Moore, noted that new residential construction could be considered “the most interest sensitive part of economic activity - both because lower interest rates lower financing costs, but also because it raises home prices, making more projects viable”.
“All else equal, we'd expect that lower rates will start to encourage more new builds, which will bring more supply in to market and help improve availability and affordability. It's obviously a slow process though, as building homes takes time.”
According to Metricon chief executive Brad Duggan, property seekers and mortgage holders now need reassurance from the RBA for this rate cut to have the necessary impact.
“What I want from the Reserve Bank governor is some positive sentiment about how robust the Australian economy is. It’s not just the cut that is important, it's the messaging around the cut that's critical," Mr Duggan said.
“The rate cut in February was combined with some pretty negative commentary, and it really didn't result in any change in land sales and new house contracts.”
In Metricon’s view, according to Mr Duggan, there are “a lot of good things to talk about in the economy”.
He would like to see more discussion around the return of core inflation to within the RBA’s 2%-3% target band, as well as record low employment.
“For people to feel secure and take the leap, this rate cut is not going to deliver the full outcome we are looking for, which is to inspire people to go out and build a home,” he said.
“This interest rate cut gives people confidence from a financial point of view, but they still need confidence in the build journey.”
Mr Duggan is hopeful the country can expect three more rate cuts before the end of the year.
“If they are delivered over a period of time, and they're combined with positive sentiment about the market, it will result in a significant increase in new people deciding to build new homes.”
A cash rate cut it good, now positive messaging needs to follow, according to Metricon chief executive Brad Duggan. Image: Getty
Bank forecasts remain cautious
The Commonwealth Bank, which is the nation’s largest lender, has forecast cuts in August and November to bring the cash rate to 3.35% by the year’s end. This would be the lowest rate since February 2023.
ANZ and Westpac are also predicting two more rate cuts for 2025.
National Australia Bank – the only big four bank to have predicted a double cut today – is retaining its bullish anticipation for cuts in July, August, November and February 2026.
The next meeting of the RBA board is not scheduled until the country rolls over into a new financial year, with the next announcement slated for 8 July.
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