Joye: If RBA cuts, housing bust over

Via Chris Joye today:

If the RBA cuts interest rates, which financial markets are handicapping as certain by July, Australia’s housing bust will be over. The RBA’s own internal research estimates that a 1 percentage point reduction in the cash rate would boost house prices by 28 per cent, assuming it is fully passed on by banks (and borrowers consider the change permanent)…This column was the first to flag a radical reduction in bank funding costs…

…This has two crucial consequences. First, as we forecast (and some folks tried to dismiss at the time), banks have started cutting interest rates “out of cycle”. NAB, CBA, Westpac, Bank of Queensland, Bendigo and Adelaide Bank, Macquarie and ME have all slashed fixed-rate home loan costs by substantial margins.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.