First homebuyer boom set to continue

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If the cut rates by 0.25% <or 0.50%>

The worsening global economic conditions have prompted the Reserve Bank of Australia to slash the official cash rates by 0.25% to 3% <Or 0.50% to 2.75%> to help stimulate the local economy.

If the major banks decide to pass it on in full, this drop will bring the average standard variable rate to 5.58% <or 5.33%>. This means a monthly saving of $48 <or $98> on an average mortgage of $300,000 taken over 30 years.

Louis Christopher, managing director of SQM Research, said that the rate cut is likely to prompt even more would-be buyers to enter the property market. "Many prospective buyers who have been waiting to get to that point when buying a home is cheaper on a monthly payment than renting would find that this rate cut, if passed on in full, would give them that opportunity. The rate cut will boost buying activity, which has been fairly strong in that segment of the market and I expect that to continue," he said.

The latest home sales data released by the Housing Industry Association (HIA) showed a whopping 8.3% surge in sales in January boosted by the low interest rates and First Home Owner Grant (FHOG) boost.

Cameron Kusher, senior research analyst with RP Data, noted that first homebuyers are finding the current buying condition very attractive and he expects existing activity to continue well towards the 30 June deadline of the FHOG boost.
"The rate cuts have created that affordability for people to get into the market when they couldn't have two months ago," he said.

However, despite this attractive scenario, Kusher pointed out that investors are still missing in action. "I'm really surprised at the low investor activity at the moment. You would think it would be getting to the stage now when it's really attractive to get back into the market, with much data suggesting there are a lot of opportunities out there," said Kusher.

Savanth Sebastian, economist with CommSec, said this lack of investor interest in the property market is one area of concern. "The slowing global economy and the sharp slide in house prices overseas have kept investors nervous about entering either the share or property markets. If employment remains strong, expect a turnaround of the lack of investor interest in the second half of 2009," he said.

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