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TIP: the magic number is one, all eyes on government for stimulus, new home sales rising

The last time home loan rates were this low, Elvis Presley was in the Army.

The difference a few months and a bit of monetary policy action makes. Home loan rates hit levels not seen since 1958 after the Reserve Bank cut the official cash rate for the second consecutive month yesterday.

RBA governor Philip Lowe made it clear yesterday that cutting rates by another 0.25 points to its historic low of 1 per cent was needed - but that the government's incoming tax cuts and other stimulus will also be needed to move the economy along and create jobs and income growth. Dr Lowe has not ruled out cutting rates again if the job market does not improve over the coming months.

As The AFR View pointed out this morning (although not in these words), the RBA has set the stage, now the government needs to put on the play. Dr Lowe's crew has been working overtime this past six weeks while the government shakes the election dust off, now it's time for Canberra's policy makers to crack on.

Tax plan hits the Senate

The government's three-stage, $158 billion income tax package passed the Lower House last night. All eyes will be on the Senate, where the government needs four of the cross bench's six votes...Centre Alliance's two votes and Cory Bernadi are in the bag, and Tassie's Jacqui Lambie - the likely decider - is...well, undecided. One Nation rounds out the cross bench; Pauline Hanson has said she won't support the full package.

The tax package isn't enough though, to get all things economic moving in the right direction. Dr Lowe has also called for fast-tracking of infrastructure spending with increased borrowing, and new policies supporting the creation of jobs and investment opportunities.

Whatever the government decides to do, the RBA is saying, do it fast. If that happens and unemployment drops sustainably, it'll be mic drop time for the RBA on cutting interest rates.

What have the banks been up to since yesterday afternoon?

In his speech yesterday, Dr Lowe urged the banks to pass on the full cut. After grinching it up in June, ANZ has done as the good doctor ordered in July and passed on the full 25-basis-point cut to variable home loan customers.

You'll find a summary here of where each of the major banks are cutting rates across owner occupier and investor loans and savings accounts. You should also check out interest rate comparison website RateCity for a look at the broader cross-section of lender responses to yesterday's RBA decision.

Savers are taking a big hit in all this. What may be great for borrowers is disastrous for anyone relying on savings - including first home buyers trying to save a home loan deposit. The banks need to recover revenue from falling home lending interest rates, and term deposits in particular are in the spotlight. RateCity's Sally Tindall warned today that when interest rates were cut to zero by the European Central Bank in 2016, it became impossible to find a bank that would pay interest on savings.

Another boost to buyer sentiment

While pundits are warning us all not to get too carried away, yesterday's rate cuts will be great news to would-be borrowers.

Buried in all the rate news today was news from the HIA that new home sales in May bounced back to their highest monthly level in more than a year. NSW led the charge with a more than 50 per cent jump in May. Sydney, Melbourne and Hobart also saw price rises according to the HIA data.

All eyes will be watching to see how movement on interest rates impacts new home sales over the next couple of months - particularly if that translates into more residential construction sector jobs.

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