Auctions still weak but property experts welcome forecast of 1% interest rate drop

The auctions market may have delivered yet another poor result but Westpac’s prediction that interest rates will drop 100 basis points over the next 18 months has caused some property experts to raise their hopes of a recovery.

Clearance rates remained in the 50s in both major markets – Sydney and Melbourne – this weekend as the cold weather kept buyers away.

In a shock move last week Westpac amended its forecasts for interest rates, now suggesting they will drop by 100 basis points over the next 18 months as the RBA attempts to cope with the economy moving at multiple speeds.

Despite other economists contradicting the change by confirming its forecasts for rates to move up by the end of the year, Housing Industry Association chief economist Harley Dale says such a move “would certainly be a positive development”.

“If you were to see forecasts from Westpac come to fruition, then you’d be talking about a total 1% percentage point drop in mortgage rates. That’s got to be good for confidence.”

Part of the downfall in new home building can be attributed to rising interest rates, keeping prospective buyers out of the market despite prices having effectively halted during the past year.

Such a dramatic fall in rates would surely be enough to prompt prospective buyers back into the market, although Dale says it would require quite a bit more to get that market moving again.

“I think there’s a lot more going on, including a considerably tighter lending environment on both the demand and supply side of the housing equation.”

“The other factor is that if you’re looking at 100 basis points in drops, you’re staring down the barrel of a pretty bad global situation.”

Brian Welch, executive director of the Victorian branch of the Master Builders’ Association, agrees that such a dramatic drop in rates would spur the industry into movement.

“That is the main factor in people’s willingness to spend. To say that interest rates would drop rather than the reverse, that would be a bit of tonic for the industry as a whole.”

“Volume builders are noticing the change away from first home buyers, and the sensitivity of the market. People are cautious, too cautious to make commitments, and all that tells me people are being careful in the industry.”

Dale says the economy is “first and foremost sentiment driven”, and seeing interest rates fall would be a boost to confidence.

However, there is no sign of any boost in confidence in the property market yet. Auctions results this weekend were subdued as the colder weather kept buyers away.

In Victoria, the clearance rate was 56%, with 377 homes put up for auction. Only 211 sold with 166 passed in.

“The REIV June quarter median prices showed that over the last three months there was little difference between demand at auction to that at private sale with the median price of houses sold at auction increasing by 1.2%, and those sold at private sale increasing by 1%,” REIV chief Enzo Raimondo said in a statement.

In Sydney, the clearance rate was 55.9% on 181 reported auctions, while Adelaide and Brisbane recorded clearance rates of 50% and 16.1% respectively.