April 24, 2023 by Dymphna

CBA cuts rates. Already?!?

The interest rate cycle has clearly turned.

It is clearly looking like the property market has bottomed out and is on the move northwards from here.

There’s a few dark clouds I have my eye on, but prices lifted in March, listings remain limited, and rents are growing strongly.

And to top it all off, interest rates are falling.

Not in variable rates just yet. That hasn’t happened. But at turning points like this, banks start dropping their fixed rates first, as they become more confident that rate cuts are coming.

That’s what Commonwealth bank did last week, slashing its fixed rate offering by a fairly hefty 0.4%…

Commonwealth Bank, the country’s largest mortgage lender, has slashed its fixed-rate borrowing costs, in a move that will add further momentum to a post-Easter residential market picking up faster than many analysts expected.

CBA cut its 3-year fixed rate packaged loan for both owner occupiers and investors on Friday by 0.4 per cent to 5.59 per cent and 5.69 per cent respectively. This followed similar moves by 15 smaller lenders and non-banks in cutting their fixed mortgage rates in the past two weeks.

Lower fixed rates from the bank with a $537.6 billion housing loan book will embolden more buyers, adding to the feeling from measures such as rebounding immigration and more listings and higher-than-expected auction clearance rates over the past week that the east coast-dominated housing market has bottomed out.

“This will firm up in would-be buyers’ minds that we are at the peak and give them more confidence,” said Louis Christopher, the managing director of consultancy SQM Research.

A move to cut interest rates by the Reserve Bank of Australia would have a greater impact in fuelling demand, but with demand already being stimulated by this month’s pause in rates, a fixed-rate cut by lenders would stimulate buyer appetite, Mr Christopher said.

When you look at where fixed rates are at right now, they’re still a long way from the crazy lows of Covid, but the point is that they’ve turned and are heading lower.

And Christopher is right about the impact on confidence.

When rates are scorching northwards at a rate of knots, it’s very hard to know what you’re signing up for when you buy a house.

What if rates keep going up for another year?

Now that interest rates have stabilised, that will make it much easier for first home buyers and investors to do the maths and figure out what they can actually afford.

And this in turn, should bring more buyers into the market.

And that, in turn, gives me more confidence that the market has actually bottomed. The stable rate environment will increase demand at a time when the amount of stock remains limited.

Prices will naturally lift as a result.