Property market waits for RBA rate cut, but experts warn banks hold all the power

The property market is begging for a cut to the official interest rate tomorrow, but experts warn everything depends on the big four banks, and whether they will decide to follow the Reserve Bank’s actions.

The comments come as the auctions market dropped to a new low in Sydney, while remaining steady in Melbourne, although listings are still well under the same levels recorded last year.

According to Australian Property Monitors, Sydney recorded a 48.8% clearance rate with 271 listed auctions – one of the lowest rates in the past few years.

The Real Estate Institute of Victoria recorded a 60% clearance rate with 520 auctions reported, just under the 544 listings recorded this time last year. Chief executive Enzo Raimondo said the outcome was “very consistent”, and noted the upcoming RBA announcement has the opportunity to turn the property sector around.

But experts aren’t so sure. Although a 25 basis point cut is all but assured tomorrow, SQM Research managing director Louis Christopher says the banks’ decision to decouple themselves from the RBA’s movements means it’s harder for just one announcement to make a significant impact on confidence.

“Let’s assume we do get a rate cut, and the odds are that we will. But how much of that is going to be passed on? If they only pass on a fraction of it, less than half, it’s not going to do much for the market.”

“All it will actually do in the minds of buyers is confirm the amount of clout the banks have now. And that’s scaring off a lot of people.”

There is some positive news for buyers, as Westpac announced it would cut mortgage rates ahead of tomorrow’s decision, providing a discount for loans between $150,000 and $250,000. It has also cut fixed one-year and three-year home loan rates.

However, the bank has said it cannot confirm at this point whether it will pass on any rate cut in full.

Housing Industry Association chief economist Harley Dale says this is the main issue. Although movements from the RBA are “helpful…they are not some kind of panacea to address weakness in the housing market”.

In addition to further movement from government to provide stimulus, Dale says the RBA will need to provide more cuts than usual – perhaps even 75 basis points over the next several months – for the banks to adjust their rates by enough to kick-start the market.

“If you get 75 basis points’ worth of cuts from the RBA, you may only get 50 points of relief for home owners. I think that would be sufficient enough to provide a helping hand.”

Dale’s comments also come as the HIA releases its new home sales report, which shows the market has continued its decline.

However, there is a spark of hope as economists predict the RBA will have no choice but to move tomorrow, following last week’s feeble inflation data.

CommSec economist Craig James predicted last week there is an “ironclad” cause for the Reserve Bank to cut rates by at least a quarter of 1%.