Ewan's Blog

What next?

Tuesday 18 Aug 2015

In our business there is always a very keen focus on interest rates because of the expectation rate movements will drive changing demand in the property market.

I've said before that I am not convinced a rate drop always automatically leads to an immediate spike in demand and prices. In my view it is as much the expectations around possible rate changes that drive demand rather than just the specific cost of finance.

The consistently rising market we have seen over the last 18 months has been fed by the prospect of further rate decreases sporadically implemented by the RBA back in May and August 2013 and then again in February and May this year.

But with rates now at such an historic low of 2% the market has plateaued along with a general expectation that further rate cuts are unlikely. As I said last week I think buyers have reached the top of their budget and the consensus that rates won't move is in turn putting a hold further growth. Prices aren't dropping. We achieved great above reserve results over the weekend, but the growth has certainly slowed.

So here we are on a 'plateau' which is the word of the week when describing the current residential property market. It's elevated but flat and stable and it might stay that way for the foreseeable future. I don't see demand diminishing but neither can I see prices increasing without another rate cut to add some wiggle room in the budget.

I recognise some might worry that a 'plateau' must end with a drop. Yes that's true according to the geographic definition, however remember that plateaus can be very long and the fall at the end could well be interest rates not prices!