Rate cut to fuel housing activity as affordability improves

With the RBA slashing rates by 1% to 4.25% today, the housing market is poised for a significant increase in activity amid improving buying conditions and easing affordability constraints.

Harley Dale, chief economist with the Housing Industry Association, said there are already some tentative signs that inquiries from investors are starting to pick up. "I think many are looking at their sums and are realising that with the amount of interest rate cuts and what remains a very tight rental market where yields are still climbing, it is now a good time to buy. Despite not getting the growth in asset at the moment, it's actually a good time to be investing in property particularly with what's happening with the share markets."

Tim Lawless, national research director with RP Data, said the rate cut would see further activity in the lower end of the market.

"We do expect the markets that are likely to respond to the interest rate cut are the ones in the lower price segments because there has been a lot of pent-up demand building for these types of properties from first homebuyers and lower income families over the past few years. They are the markets that are becoming more active now and probably the ones that will respond first to further falls in interest rates."

However, Lawless said buyers are likely to remain very cautious as uncertainties over jobs continue to dominate.

"I don't think we're going to see a sudden increase in buying activity as a result of the latest rate cut. We have started to see more people go to open houses and inspections, but we haven't even seen a strong buying behaviour just yet. I think we're going to see the start of a gradual return to the market. It will be quiet over Christmas holidays so it won't be until the first quarter of next year that we're going to see any real signs of increase in sales volume as buying conditions and affordability will continue to improve."

Dale agreed that the recovery in the market will be slow to begin with due to the high level of cautiousness in the market. "It will be a slow grind up. But we're likely to see momentum picking up in 2009/10 financial year as the rate bottoms out."