Signs of a pick-up in the Australian housing industry started to show in February and March.
Building approvals increased 8 per cent in February, finance figures rebounded 19 per cent since August and auction clearance rates remain healthy, hitting consistently above 60 per cent in Sydney and 70 per cent in Melbourne.
All the fundamentals were a prelude to the flat line results in national housing prices last month.
Still the Reserve Bank of Australia saw fit to lower the case rate again in April after leaving them on hold in March, down 25 basis points to 3.25 per cent – the lowest point in half a century.
Analysts continue to support lower interest rates, though for how long depends on the impact of the Federal government’s stimulus package and already dramatic cuts from the past five months.
Overseas the official cash rates of many countries have come close to zero.
Australia however, suffering slightly less than the UK and the US from the global financial crisis, will not have a similar situation according to analysts who are forecasting a more moderate interest rate environment in the months ahead. Many analysts are forecasting rates to hit 2.5 per cent by September.
A predicted fall in gross domestic product this year, as signposted in late March by RBA deputy governor Ric Battellino and rising unemployment suggests rates will be cut again.
JPMorgan chief economist Stephen Walters expects the official cash rate to reach 2.5 per cent by mid-year but the relief will be short lived with the RBA worried about booming credit levels and rising inflation.
Others such as Commonwealth Bank of Australia economist Michael Blythe feel the RBA will keep rates low as long as the global financial crisis exists, with no tightening expected until there are signs of an economic recovery.
For property pundits the prospect of lower rates will help first home buyers and second-home upgraders, who are taking advantage of the activity in the lower end of the market, while alleviating some financial pain to householders on fixed loans due to expire.
Australia New Zealand Banking Group economist Alex Joiner warned investment activity in property remained low, after falling off in mid 2008, however further rate cuts and any additional fiscal stimulus offers from the Federal Government is likely to fuel demand.& nbsp
“It's certainly an opportunity for people to get into the market. You might see people going in with a little more confidence with the banks offering to defer mortgage payments [for 12 months] if people do lose their jobs,” Dr Joiner said.
But BIS Shrapnel property analyst Angie Zigomanis is more wary about the outlook for rates and was surprised with the RBA’s actions this month.
He warned further stimulatory moves and keeping rates low for too long could impact negatively on the industry, resulting in an “overheating”. Mr Zigomanis is forecasting moderate price growth to return in 2009-10 on the back of a more stable economy.
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