House Prices Fall: Are Rate Cuts Not So Effective?

Cuts in interest rates are having little effect in stimulating the property market.
There is widespread concern for the Australian economy with industry experts noting that the effectiveness of low interest rates is thwarted by the reluctance of banks to extend the full benefits to their home loan customers.

Although the Reserve Bank of Australia has reduced the cash rate 6 times in just over 12 months, weak demand from home buyers continues to exist. The value of real estate has simultaneously remained low, with the value of Australian homes decreasing for the second consecutive year. This makes 2012 the worst year for the national market in some 16 years.
Shane Oliver, Chief Economist for AMP Capital Investors said, “Normally this far into an easing cycle things should be running quite a lot stronger than they are. Every time interest rates have been cut over the last 20 to 30 years there has been a response in the housing sector. We haven’t seen the same response this time.”
Although low interest rates can make mortgage repayments more affordable, it seems that an increasing number of people realise that low interest rates do not equate to good economic conditions.

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