Record Low Interest Rates Fuel Home Loan Surge and Welcome Uptick in Sydney Property Market Values

  • RBA SETS CASH RATE AT RECORD-LOW 0.1% – TARGETS JOBS AND THE ECONOMY
  • BIG-FOUR BANKS NOW OFFERING 4-YEAR FIXED RATE HOME LOANS UNDER 2%
  • SYDNEY CLEARANCE RATE ACCELERATES IN OCTOBER TO REACH 77% AT MONTH-END
  • SYDNEY MEDIAN DWELLING VALUE TICKS UP 0.1% IN OCTOBER TO $860,955
  • NATIONAL HOME VALUES TURN POSITIVE, INCREASING 0.4% IN OCTOBER

                (CoreLogic and REIA figures. RBA Charts)

It’s good news across the board for Australia’s housing market. 

Without doubt, the biggest news came on November 3, when the RBA lowered its cash rate from 0.25% to a record-low 0.1%. RBA Governor Philip Lowe stated that “In terms of interest rates, I think we have gone as far as it makes sense to do so in the current environment.” The floor is in for interest rates and there won’t be a better time than now to refinance or take out a new home loan.

To further increase available funds in the lending market, the RBA is also purchasing $100 billion of government bonds over the next six months. This exceptional measure will offer strong financial support for commercial banks’ relaxed lending policies towards owner-occupiers and investors, making it much easier for banks to supply credit and home loans to the housing market. The RBA is also targeting employment in the housing sector through increased residential building approvals.

The Big Four Banks immediately passed on the RBA rate cut in full, even offering headline rates of 1.99%* on four-year fixed rate home loans for the first time ever (*comparison rate 3.29%). The CBA also announced a moratorium on foreclosures until September 2021. Other banks are expected to follow, meaning the much-anticipated ‘wave of distressed sellers’ hitting the market will once again fail to materialize. It’s a worst-case scenario for the doom-and-gloomers.

Pre-approved borrowers are returning to the property market and prices are ticking back up. In Sydney, the October clearance rates improved every weekend into month end (65%, 72%, 75%) to finish at a preliminary 77% on October 31, despite a month-high 771 properties up for auction. Sydney recorded an annual change of 6.1% in property values, well above the national average of 3.9%. Total returns were also above the national average at 8.8% v. 7.6%.

The surge in new home loans saw owner-occupier commitments hitting a record high in October. Such strong momentum will not reverse quickly, especially when the RBA is adding $100 billion to the pool of available funds. 

 

The Bottom Line

The $100 billion of quantitative easing from the Reserve Bank is the perfect complement to the Big Four Banks’ relaxed lending policies towards owner-occupiers and investors. Banks have made it much easier for borrowers to get quick approvals of home loans at record low rates. Now the banks have additional funds available to fund more borrowers. The immediate effect of these significant changes was to set a floor in housing prices and bring about a welcome Spring uptick in property values. 

Coupled with high auction clearance rates and nationwide moratoriums limiting distressed selling, all signs point to healthy increases in Sydney housing prices through year-end and into 2021. This is in line with higher and/or record property prices in other leading housing markets around the world.