Expected Australia rate cuts may not turnaround house market

SYDNEY: The prospect of interest rate cuts in Australia could help boost confidence in the country's weakening residential housing market, but a decent turnaround in the property market may have to wait until next year, economists said on Thursday, Oct 27.

Soft Australian inflation data this week has cleared the way for a cut in rates as early as next week. Many economists are now forecasting a cut of 25 basis points in the Reserve Bank of Australia's 4.75% cast rate.

"It would be a move in the right direction and might help stabilise prices and remove some of the downward pressures," said Shane Oliver, head of investment strategy and chief economist for AMP Capital Investors.

"But I think probably we need to see a few more cuts to generate a decent turnaround in the property market. And that is unlikely until perhaps the June quarter of next year if the reserve bank does cut this year which we expect," he added.

Buyers remain wary of taking on new debt and consumer confidence has been low on the back of economic uncertainties in Europe and the United States.

Data on Thursday showed that Australia's national median house prices fell 1.6% in the September quarter, the fifth consecutive quarter drop, according to property research firm Australian Property Monitors (APM).

For the year to September, all the major capital cities witnessed declines in median house prices except Canberra, APM said.

Andrew Wilson, senior economist for APM, said economic uncertainties in Europe and the United States were weighing on consumer confidence.

In particular, a recovery in financial markets could hold the key for a revival in the luxury residential market which has been the hardest hit in recent years, he added.

"I think we need to see a stronger or more sustained performance from the stock market before we see a real revival in the top end," Wilson said.

Alan Oster, group chief economist for National Australia Bank, said a likely rate cut next week would help consumer confidence, but would not be "a silver bullet".

"I think house prices will probably likely go down for a little while and we basically are going to see house prices sideways for 18 months," he said. — Reuters