The majors' decision to pass on the Reserve Bank's rate cut in full is likely to stimulate buyer activity, RP Data's Cameron Kusher has claimed, although it won't send property values soaring.
According to RP Data's research analyst, the rate cut will encourage an improvement in consumer confidence which in turn will create more retail sales transaction activity.
But while Mr Kusher expects sales activity to increase, he said it is unlikely the rate cuts will provide enough stimulus to result in any significant turnaround in property value growth.
"We suspect that consumers will remain cautious and continue to pay down their debt. Given this, the cut will likely provide welcome relief to home owners and may encourage some increase in sales activity next year, however, it is unlikely to provide a stimulant for property values to once again start increasing given the broader economic conditions," he said.
"Undoubtedly interest rate cuts improve housing affordability."
In stating this however, Mr Kusher said capital city property values have fallen by 4.0 per cent over the 12 months to October 2011 while rental rates have risen by 4.6 per cent which also improves affordability.
"Although history can be a guide to the future, we feel that conditions are somewhat different this time round - property values are higher than they have been before and although interest rate cuts and value falls help boost affordability, it remains much more affordable to rent than it is to purchase," Mr Kusher said.
A raft of economic indicators suggests market conditions may be somewhat different than those of the past.
Retail trade has grown by just 3.4 per cent over the 12 months to October 2011 which is well below the decade average growth of 5.4 per cent annually. GDP Data released for the September 2011 quarter this week shows that the Australian economy expanded by 2.5 per cent over the year compared to an average expansion of three per cent annually over the past decade.
The data also showed that households continue to save around 10 per cent of their income which is at levels not seen since the mid 1980s.
The total value of housing finance commitments have grown by just 4.1 per cent over the 12 months to September and have fallen by 1.3 per cent when refinances are removed. These figures are well below the respective decade averages of 9.4 per cent and 8.9 per cent.
Mr Kusher said that considering the European Governments are currently experiencing a debt crisis, not to mention the ongoing weakness of the US economy, these markets are certainly not looking as strong as they were over the past 10 years.
"Given the overall cautious nature of Australian consumers and the weak economic conditions in a number of other advanced economies , it would seem unlikely that even if the Australian economy continues to perform comparatively well, credit for housing will be as freely available as it has been in the past over the next 12 months."
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