Interest rate stability to underpin WA housing market

When asked about the outlook for the economy1, Evans said:

“We are not convinced that the cash rate will need to rise any time throughout the course of 2017, 2018 or 2019.”

While home buyers have been prepared for rates to start rising again after hitting record lows, it seems that the saving rate of consumers has not yet recovered to an acceptable rate.

As part of preparing for future rate rises, the proportion of people with home loans choosing a fixed rate loan hit a record of 18.7 per cent in July, the highest since 2013 when the RBA cash rate was 2.75 per cent.

Principal of Smartline Rockingham Mortgage advisors, Justin Smith, said that the prediction by Westpac economist Bill Evans was a strong vote of confidence for those battling to make ends meet.

“An interest rate increase at this point in time would only serve to hurt the bank accounts of Australians in regional areas and in Western Australia,” he said.

“Housing in Perth and Rockingham has not yet recovered to a place where we can say with 100% confidence that the economy is set for double digit growth. Until that happens, it would just be unfair to raise interest rates.”

Smith also noted the high level of development in WA would be hampered by any possible rate rise.

“While most people think of first home buyers being negatively affected by a rate rise, those most affected are actually those who have bought apartments off the plan and are still waiting to settle. The high rate of development projects could be under threat if interest rates were to rise. Anything that puts a sense of doubt in the home buying community could have a disastrous impact,” Smith said.

If the RBA does raise the official cash rate in the short term, it will be interesting to see how the big banks respond and if there is a backlash in the industry. While capital cities of Melbourne and Sydney may be able to absorb a rate rise, other states like WA will be hit harder.

References:

1. “Interest rates locked in until 2020 says Westpac chief economist”, Shane Wright, The West Australian, 26/9/17