The first interest rate cut in five years was welcome news for our housing markets.
Though modest, this rate cut is not just about the potential savings for homeowners; it's primarily a psychological boost that should reignite confidence in our housing market.
While much of the focus in the media is on the relief for homebuyers, more broadly, this move suggests interest rates have peaked and that we're now in a downward cycle on borrowing costs.
Even though the RBA warned that further interest rate cuts are not guaranteed this first cut signals greater clarity after a long period of uncertainty on the direction of interest rates should have a positive impact on not only homebuyer and seller confidence but also business confidence and the RBA's decision will help them make longer-term decisions.
On average homebuyers will have an extra $100 a month in their budgets after lenders reduced home loan rates by 0.25%.
Not all borrowers will spend this extra money. Some will continue to pay down their loans or increase savings or put it in the offset accounts.
But in aggregate this will be good for the economy and for businesses.
And the fear of being caught in rising interest rates after purchasing a home or investment property is significantly reduced, which should encourage more Australians to buy.
Historically, when interest rates fall, buyers who have been sitting on the sidelines are enticed back into the market and property values start to increase as buyer confidence increases before seller confidence, making these new home buyers compete for the limited stock of properties available.
Barbara Hutson