Rate cut opens "buying opportunity"

By Gerv Tacadena

Current market conditions make it hard to predict where prices will go, says an expert

The Reserve Bank of Australia (RBA) decided to make an emergency rate cut to stimulate the economy amid the COVID-19 pandemic — what could this mean to potential homebuyers?

Tim Lawless, head of research at CoreLogic Asia Pacific, said the uncertainties surrounding the impacts of the coronavirus outbreak make it difficult to forecast where prices will go after the rate cuts.

"The announcement from the RBA was driven by economic necessity. It is aimed at keeping the Australian dollar low, ensuring borrowing costs are stimulatory for businesses and households, and helping to stabilise and capitalise credit markets," Lawless said.

However, the same economic weakness and uncertainty will likely “keep consumer spirits low,” he said. Still, there could be an opportunity waiting to be taken amid the current market conditions, Lawless said.

"For buyers who have the confidence and financial well-being to remain active in the housing market through this period of weakness, there could potentially be some good buying opportunities to secure properties at a competitive price and at ultra-low interest rates," he said.

Also read: Banks roll out support for clients affected by COVID-19

The historic-low cash rate of 0.25% would likely be the "the effective lower bound” for the RBA. Lawless said this means that the central bank would have to turn to "unconventional monetary policy" to drive the economy further.

In a separate analysis, Eliza Owen, head of residential research at CoreLogic, said the likely economic drag from COVID-19 would not necessarily translate to a drop in prices.

"Transaction activity is likely to be impacted more than market values.  As consumer confidence reduces, and labour markets are disrupted, more Australians are likely to put high commitment decisions on hold until there is more certainty around the economy, jobs and household finances," she said.

Nigel Stapledon, a research fellow from the University of New South Wales, said property investors could seize the opportunity to expand their portfolios with the weaker market conditions.

"If prices come down, investors could be in a better position to buy, to create or add to an existing property portfolio, but that weakness in rents is a real factor — it has been for some time and is unlikely to go away any time soon," Stapledon said a think piece in The Conversation.

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