RBA cash rate still at record low, so is now a good time to buy property?

Home loan interest rates continue to move even though the official cash rate is still on hold, with Canstar’s database showing cuts and rises across the board and new record-low rates made available in the past month. While mortgage interest rates remain low, it appears Australians are split on whether now is a good time to buy.
RBA cash rate May 2021
Interest rates are at record lows, but is now a good time to buy property? Research shows Australians are divided. Image source: Daria Nipot, Shutterstock.com.

At its May board meeting today, the Reserve Bank of Australia (RBA) decided to keep the cash rate on hold again at 0.10%.

The low interest rate has seen lenders continue to offer record-low rates to borrowers. In fact, Canstar’s database currently lists 181 interest rates below 2% – 159 of which are fixed rates and 22 are variable.

Low mortgage interest rates are one likely reason why some Australians think now is a good time to buy property, according to new research, but high house prices could explain why an equal proportion of people disagree.

No end in sight to rising property prices was found to be the leading cause for close to two fifths (38%) of Australians thinking now is a good time to buy property, according to a Canstar survey*.

The idea that property prices could continue to rise was the main reason why people surveyed think it is currently a good time to buy, followed by low mortgage interest rates and the view that government incentives to buy may not be around forever.

While almost one quarter (23%) of Australians surveyed were sitting on the fence and unsure of whether now is a good time to buy, a further 39% thought now wasn’t the right time.

For those 39%, the data reveals their top three reasons were beliefs that property prices have been inflated so housing is not affordable, that the property bubble will burst and prices will fall in future, and that there is too much competition with a limited supply.

Canstar finance expert Steve Mickenbecker said the roughly equal divide between those who believe now is a good time to buy and those who disagree suggested there could be greater balance in the housing market moving forward compared to the current state of undersupply.

“Sentiment appears to be shifting from today’s overheated market,” Mr Mickenbecker said.

He said signs of the property market slowing down could be welcome news to the RBA and the Australian Prudential Regulation Authority (APRA), who have both been watching bank lending closely in recent times. New loans for housing rose 5.5% in March 2021 to a record high of $30.2 billion, according to figures released today by the Australian Bureau of Statistics (ABS).

RBA Governor Philip Lowe said today the central bank would be monitoring trends in housing borrowing carefully, and it was important that lending standards were maintained.

“The Reserve Bank doesn’t want to hurt the broader economy with higher interest rates and is hoping for healthy property prices to support spending, but at a slower pace so that first home buyers can afford to stay in the race,” Mr Mickenbecker said.

“Today the market is overwhelmed with buyers, auctions are intensely competitive, open houses are crowded and unconditional contracts are becoming the norm. Low housing supply on the market has intensified fear of missing out. We are in a low interest rate frenzy.”

Mr Mickenbecker said first home buyers tossing up whether to buy or not to buy could take a long-term view that, while there are no guarantees for the future, median property values have historically continued to grow over time even when bubbles have burst. Nevertheless, he said buyers should consider shoring up a healthy deposit and factor in whether they will be able to afford a loan at rates that will likely rise in the next couple of years.

Canstar’s data shows some rates are already starting to rise, as 14 lenders increased 134 fixed rates by an average of 0.23 percentage points in April, as part of a broader trend of rising longer-term fixed rates.

“First home buyers have been anything but deterred from the market and have leapt in with gusto, encouraged by government incentives,” Mr Mickenbecker said. “They are increasingly competing with investors able to make unconditional offers and blow them away at auctions, and would clearly welcome a more stable market.

“The market continues unabated for now, but a slow and steady future is hopefully ahead of us.”

CoreLogic data released on Monday showed house prices jumped 1.8% in the month of April, indicating there is still energy in the market. But growth does appear to be slowing, with this figure down from the record-breaking 2.8% jump recorded in March.

*Survey of 819 Australians aged 18+. Commissioned by Canstar and conducted online via Qualtrics in April 2021.

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This content was reviewed by Sub Editor Tom Letts and Deputy Editor Sean Callery as part of our fact-checking process.

Ellie McLachlan is responsible for leading and breaking financial news on mortgages, money and much more. Ellie studied a Bachelor of Journalism and Arts at UQ and has worked at major metropolitan and regional news organisations.

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