“Interest-ing! How interest rate cuts drive our real estate” is the theme of this month’s HTW Month in Review

 

– Currently the property market is performing well with steady growth across the board in Melbourne.

– RP Data shows that Melbourne property prices have increased 8.1% over the past 12 months.

– An interest rate fall allows borrowers to feel more confident when borrowing money as their monthly bank repayments would be lower or the amount they borrow could be increased.

– First home buyers would also be encouraged to enter the lower end of the property market and therefore create more demand, which in turn can drive property prices up.

– The lending market would also become more competitive, offering better loan packages as lenders try to attract their share of any increase in borrowing.

– This results in the cost of money becoming cheaper and property values rising.

– The greatest benefit of interest rate cuts will be seen in the lower end of the property market.

– As interest rates are gradually lowered, the Melbourne property market will initially see an increased investment in outer suburban areas of Melbourne such as Craigieburn, Mickleham, Mernda and Doreen.

– These suburbs are at the medium to lower price point value, with a current median sale price of houses in these suburbs of $350,000.

– People living here usually have mid to lower income levels, for example, 19.9% of Craigieburn households earn between $52,000 and $78,000, and would therefore receive more relief or encouragement to borrow when there is an interest rate cut.

– Outer suburbs such as these consist of modern conventional homes that are master planned and mass-produced by large building companies.

– The more people who decide to buy or build a property due to the interest rate cut, the larger the growth of property prices in these suburbs.

– Inner city properties containing higher value properties will be significantly less affected by interest rate cuts.

– The inner suburbs are at the medium to higher price point value with a current median sale price of $1,077,500.

– Generally, those who live closer to the CBD and own their residential dwelling have a higher income, for example, 20.5% of Northcote’s households earn between $78,000 and $130,000 per year.

– With these higher income levels, Parkville and Northcote residents generally own higher value assets such as period or modern dwellings with higher land values.

– As a result, the downward movement of interest rates isn’t going to have as large an effect on these households.

– Cuts to the interest rate would only ensure that consumer confidence remains solid and that properties continue to have steady to moderate growth.

– Many types of investors exist within Melbourne’s property market including property syndicate funds, foreign investment and owners looking to negatively gear.

– All investors receive encouragement from lower interest rates although different categories of investors will be affected to different degrees.

– The RBA lowering the interest rate will boost the already strong number of overseas investors

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Thanks to Therese from Alphabroker