Following on from yesterday’s article, Credit-dependent industries demand rate cuts, Australia’s mortgage broking industry has today called on the Reserve Bank of Australia (RBA) to cut official interest rates and for the Federal Government to increase subsidies to first home buyers, in an attempt to reinvigorate the flagging housing market:
Mortgage broking groups Mortgage Choice and Loan Market Group are calling on the Reserve Bank to cut interest rates next month to help encourage more first-home buyers back into the market.
Mortgage Choice CEO Michael Russell says a rate cut is needed to stimulate the non-mining sector.
“We’re already witnessing the extremes of a two-speed economy, evidenced in slowing demand for property and a struggling retail sector,” Russell told Property Observer.
Russell also believes that if the government remains committed to the first-home owners’ grant, then it should look to “make it more equitable by indexing it to the median house price and backdating it to its first anniversary, July 2001”.
I find it curious how the property industry argues that Australian housing is not a bubble and is underpinned by ‘sound fundamentals’, yet continually demands lower interest rates and first home buyer stimulus from the government….where’s the underlying demand?
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Thankfully, there are some wise heads quoted in the article, with Bendigo and Adelaide Bank chairman, Robert Johanson, strongly opposing further government intervention in the housing market:
“The government were just giving people money to get into new houses, which transferred the value to the sellers. It just puts costs up,” Johanson says.
“I think it’s a waste and a distraction,” he says.
The article also quotes Loan Market Group data, which shows a sharp drop-off in first home buyer mortgage enquiries in March, especially in New South Wales, where the pull-forward of demand arising from the 31 December expiry of stamp duty concessions appears to be coming back to bite:
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BIS Shrapnel senior manager Angie Zigomanis says first-home buyer incentives bring forward demand and consequently result in a drop off further on – as has been the case in Victoria.
Loan Market recorded a 20% drop in the number enquiries from first-home buyers nationwide during March. The fall was greater in New South Wales and Victoria with activity in those states down 25% and 23% respectively in March compared to February. Only Queensland bucked the trend with a 3% rise.
Loan Market corporate spokesman Paul Smith says the decision by the RBA to leave rates on hold and the major banks lifting their variable rates in February has deterred first-time buyers.
“There had been a revival in the first-home buyer sector late last year and early this year on the back of the RBA twice cutting the cash rate in November and December, 2011,” he says.
“But the combination of official rates staying on hold and the banks raising rates independently of the RBA has caused some confusion in the marketplace as some buyers are unsure exactly where home loan interest rates are headed.”
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
