When Westpac went out on a limb in July predicting an interest rate cut by the end of the year, it was met with disbelief, perhaps even laughter in the hallways. In contrast, the other big banks were heralding a rate rise – they said it was simply a question of when.
So when the Reserve Bank Board decided to lower the cash rate by 25 basis points to 4.5 per cent, on Melbourne Cup Day, a year after rising rates, it was hard to work out who was the biggest winner of the day Westpac’s chief economist Bill Evans for his interest rate cut prediction or Dunaden, winning the race that stops a nation in a photo finish.
And there were more winners on the day, for mortgage holders the rate cut will trim the repayments on a typical $300,000 loan by around $50 a month. Westpac took only 15 minutes to announce it would pass on the full quarter of a percentage point discount on its variable mortgage rate, lowering it to 7.61 per cent. The Commonwealth Bank didn’t hesitate either, dropping their rates to 7.56 per cent, and the ANZ followed suit, cutting its rate by the same amount to 7.55 per cent. NAB was feeling the heat, cutting its rate by 20 basis points to a new rate of 7.47 per cent – the lowest among major banks, but a move the Federal Treasurer has called greedy because it hasn’t passed on the full cut.
Meanwhile, the Housing Industry Association says the Cup rate cut was the right call given the fall in building approvals in September. Building approvals fell by 13.6 per cent, seasonally adjusted, driven by a decline in the volatile “other dwellings” segment of the market. The result was weaker than expected.
New home sales also fell in September according to HIA’s New Home Sales Report. The number of new homes sold in the month fell by 3.5 per cent to be down by 14 per cent over the September quarter.
And capital city house prices also fell, recording a drop of 1.2 per cent for the quarter, that’s a fall of 2.2 per cent for the year. All cities were in the red. The housing market has been recording steady price declines since the start of September last year. Even the latest rate cut is unlikely to be enough to stop the downward trend.
