A wave of renewed optimism has begun to ripple through Australia's housing and mortgage markets, thanks in part to the Reserve Bank of Australia's (RBA) most recent rate reductions.
After an extended period of mixed signals – marked by affordability concerns and rising property prices, alongside steady employment and low interest rates – the central bank’s recent move may be the catalyst reigniting momentum and encouraging borrowers to take the leap into the market.
Mortgage brokers are observing a notable uptick in market activity and inquiry volumes.
"Since the RBA dropped rates, there's definitely been confidence starting to grow again in the marketplace," Chris Hall, founder and managing director of Blue Crane Capital, told Australian Broker. "We've seen a pretty big uptick in residential and commercial inquiries from clients. The keywords are that confidence is starting to creep back in. It should be a good 12 to 18 months in property."
And while the RBA’s recent actions have helped stabilize the market, rising wages and easing inflation are also boosting confidence among both homeowners and businesses.
The latest Westpac–Melbourne Institute Consumer Sentiment Index rose 2.2% to 92.1 in May, while the ANZ-Roy Morgan Consumer Confidence Index was up 0.8 points to 88.3 the same month. The NAB Business Confidence Index moved to -1 in April, up from -3 in March.
But Hall, whose Sydney-based firm works with a number of buyers agents and clients nationwide, added that there are caveats.
"With a rate drop, it has helped in terms of borrowing capacity. Which means the client can borrow more. However, what we've also seen is the lenders, on their debt servicing calculators, increase their HEM index," said Hall, referring to the HEM, or household expenditure measure, a benchmark measure used by lenders to evaluate home loan applicants and their ability to pay back loans.
"When a client discloses their living expenses, they are more often than not quite low," Hall said. "The lenders calculate things like postcodes, the number of people within a family and their income. And based on that and their algorithms, [the lender determines] the minimum living expenses needed. That impacts borrowing capacity.
"So whilst the rates have dropped, which in essence helps with borrowing capacity, the lenders, a lot of them, have increased their HEM," he said. "So it's been a positive weekend and a negative week in that regard."
Hall said the updated HEM indices are likely a result of a rising cost of living. "I think they're just trying to be prudent and manage their risk. So there's sort of a buffer in there."
National Australia Bank (NAB) went the reverse course on Friday, updating its HEM calculations in favor of buyers.
Either way, Hall said, "in general, in the last week or two, even the last couple of months, since that first initial rate reduction, we're seeing a lot of scenarios and transactions come through for both developers, but residential investors as well."
The RBA’s decision to ease monetary policy – aimed at stimulating economic growth and easing pressure on household budgets – has brought the official cash rate (OCR) down to 3.85%, the lowest levels in two years. This has sparked renewed hope among first-home buyers and upgraders, many of whom are navigating a cost-of-living crisis while striving to gain a foothold on the property ladder.
And while economists caution that broader economic conditions remain uncertain – between the RBA’s announcement and RBA governor Michele Bullock’s formal address, the term “uncertain” was referenced approximately 130 times – the momentum in the housing market is encouraging for the sector, and potentially for the wider economy.
But some market observers caution that it’s still too early to gauge the full impact of the RBA’s rate cuts on the housing market.
Mortgage and Finance Association of Australia's (MFAA) chief executive officer Anja Pannek described the rate cuts as a welcome relief, but warned they might take some time to flow through the economy and property markets.
Eamonn Keogh, co-founder and director of Melbourne-based Duo Finance, agreed it's too soon to tell.
"If you go back to the rate cut before that, [in February], that certainly stimulated a lot of conversation with our clientele," he said. "A lot of people were looking to review their current loans based off that rate cut, and ensure they had the best rate available to them in the market. And that initial rate cut stimulated people to start looking at their debt and make sure they were properly set up.
"The second rate cut, it's been a little bit different," Keogh said. "A lot of the work with reviewing, and whatnot, occurred a month or so ago. We're yet to see any major shift in market expectations from our clients, or even stimulating in terms of their willingness to jump back into the buyer's market."
