Did you hear that official interest rates dropped yesterday? If you live in Australia you’ve been bombarded with the news. A very newsworthy 0.25% reduction in the Reserve Bank’s rates, hopefully to be matched by the banks shortly. Every good real estate agent knows the headline needed for their client updates: “Buyers to rush in as interest rates plummet!”
But what will really happen? In rough terms, one third of Australians are tenants, one third own our homes outright and one third have a mortgage. Yes, it’s only one third of us affected by the drop. It’s worth a quick look at what the average mortgage-holding Aussie has been doing with the rate cuts we’ve already had since last year. Many of us are stepping up our repayments or, more correctly, continuing with the same amount to the bank, getting ahead of required payments and reducing our loan term.
The RBA says we’re been more cautious with our money and over recent years have been building our wealth the old-fashioned way: by saving. “The household saving ratio has been around 9½ per cent of disposable income for the past few years, significantly above the levels recorded in the 1990s and early to mid 2000s.”
They continue: “It remains the case that there is only a small share of very highly geared borrowers, and households generally appear well placed to meet their debt obligations.” Rismark’s Christopher Joye says the median level of gearing across all home owners with mortgage debt is just 44%. It’s the top end of town that have the biggest loans, and highest LVR’s.
We’ve noted many times that mortgagee sales are a very rare event in Brisbane’s inner city suburbs. Since 1990 the RBA’s official interest rate has averaged 5.63%, and yesterday’s drop brings it back to 3.5%. It seems clear that many Australians will continue to pay down their debts and put their spare pennies in the bank.
But, (and as real estate agents there has to be a ‘but’!) how long will this financial restraint continue? How much longer will you put up with a home you’re not entirely happy with? At what age will you decide you need to reward yourself for your patience and frugality with a larger or better home? When do tenants decide the cost of renting overtakes buying, and claim their piece of property?
Like watching my wife wander past a shoe shop, I know it will happen. Sometime. Eventually. Inevitably.
We’re here when you’re ready!