Ahead of the interest rate announcement by the Reserve Bank on Thursday, Herschel Jawitz, CEO of Jawitz Properties believes that a cut would be appropriate in light of current economic data and could provide a strong impetus to the real estate market and property prices.
With slow economic growth and inflation hovering below the top end of the target range, there is good reason to support dropping interest rates by at least 50 basis points. A rate cut would provide a welcome boost to the residential market which continues to show good resilience and for the first time since 2008 is offering home owners real increases (after inflation) in property values.
“The USA is a case in point where long term interest rates on mortgages have fallen to historic lows of around 3.9% for a 30 year fixed mortgage with a five year variable rate mortgage closer to 2%. Even with a slow US economy, the low house price and current interest rate environment are benefiting the residential market as home sales start to show a sustainable recovery,” he says.
“A cut in interest rates would boost consumer confidence and affordability especially at the lower and mid-level price ranges. Whilst there is no doubt that the market has turned from a price point of view, a decrease in the interest rate would provide the much-needed impetus to speed up price growth,” he says.