Property spike or dead-cat-bounce?

Graeme Salt Broker 2 Leave a Comment

So, you have got extra cash in your pocket courtesy of rate cuts and tax cuts – what do you do? 

Many Australians are due to receive $1,080 cash back from the Tax Office over the next few weeks while recent interest rate cuts mean that someone on a $400,000, 30-year loan, will save $1,259 a year.  But what will they do with the money?

The banking regulator has recently relaxed lending rules which some believe now boosts borrowing capacity by as much as 14 per cent.  Will Australians rush back to the property market?

There is early evidence that the property market is bottoming and auction clearance rates are on the rise.  But does this mean that Australians are flocking back to property?

Not necessarily – recent Reserve Bank (RBA) research argues that a “debt overhang effect” means many will use the extra cash to pay down the mortgage.

Certainly, in times of strife, we tend to save extra cash for a rainy day. But, elsewhere, the RBA has argued that Australia’s economic fundamentals remain strong and that the reason for the rate cut is designed to stimulate wage growth rather than a response to economic conditions.

Last year, Australia’s population grew by a whopping 404,800 – many of these new people will need to buy or rent a home.  Undoubtedly there is currently a surplus of new homes on the market – but for how long?

A modest increase in spending, coupled with population growth, plus a boost in borrowing power means slowly, these new properties will be picked up; at some point the demand for property will outstrip supply without going gangbusters

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