The low-rate environment will continue to support the housing market as it grapples with the economic fallout from the COVID-19 epidemic, experts say.
Tim Lawless, director of research at CoreLogic, said that the Reserve Bank of Australia's decision to keep the cash rate at 0.25% at its monetary policy meeting this month would help maintain mortgage rates at a low level.
"The low liquidity rate is a factor that helps support housing market conditions. Homeowner mortgage rates are on average below 3%, and the most competitive rates are close to 2 %", did he declare.
In its press release, the central bank said that the board of directors will not increase the cash rate target until the unemployment and inflation targets are reached achieved. Lawless said this indicates that the cash rate should remain low for several years.
"A lower cash rate should not provide additional support to the economy. Higher rates are also off the table, at least until inflation is back in the target range and labor markets tighten considerably. Both of these factors are likely in several years, "he said.
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Shane Oliver, chief economist at AMP Capital, said that low mortgage rates keep interest costs as a proportion of household income well below historical highs.
"Low mortgage costs also make the costs of financing an investment property very low," he said.
Oliver said government support measures significantly increased household income, helping to prevent a substantial increase in mortgage arrears and to force sales.
Lawless shared similar sentiments, adding that support from banks for their borrowers in the form of repayment leave and extension of interest only periods would help stimulate consumer sentiment.
In addition, he said that the low cost of debt, improved consumer sentiment and the relaxation of COVID-19 restrictions resulted in improved housing activity in May, reversing the sharp recession of April.
"The setting of low rates and the improvement in the level of market activity also partly explain why housing values ??fell by less than half a percent through the COVID crisis -19 to date, "he said.
Still, there are potential factors flowing from the COVID-19 epidemic that could cause prices to fall worse in the coming months. Oliver said high unemployment is one of the most crucial factors.
"We have long considered the combination of high housing prices and high household debt as the Achilles heel of Australia, and so we feared in March that a sharp increase in unemployment could trigger problems with debt service, forced sales and such sharp falls in prices, "he said.
Oliver believes that once government support measures end later this year, unemployment could reach 8% and remain there for a long time.
"This, in turn, is likely to lead to some increase in defaults at the end of the bank payment holiday, stimulating forced sales and acting as a brake on housing demand", a- he says.
A decline in immigration is also expected to weigh on housing demand.
Of all the capitals, Sydney and Melbourne are likely to bear the brunt of a possible drop in prices, as they are more exposed to the slowdown in immigration.
"This can be considered a reasonable result in terms of making housing more affordable but without posing a great threat to the economy at the same time," he said.
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