With yet another rate cut from RBA to an official cash rate of 0.75%, there are strong indications that the OCR may eventually reach 0%.
Historically, the cash rate has never been remotely close to 0% in Australia, however with the economic outlook and unemployment on the rise, further rate cuts are increasingly likely, potentially bringing the official cash rate to 0% and beyond.
As the official cash rate dives deeper towards zero, there will be an increase in demand for property as:
1. It is cheaper to lend money (mortgage) and
2. It is no longer as attractive to keep liquid cashflow in the bank as there is even smaller returns now due to the rate cut
In the coming weeks and months, we should see an increase in the overall property demand which will inadvertently lead to a rise in the property prices. This puts many in an awkward position as first home owners are still facing higher property prices even though lending is cheap, whilst for people wanting to sell, their forward-thinking dilemma will be what they need to do with their liquid cashflow next as interest rates at the bank look increasingly bleak.
Consider these options if you are unsure of your next steps:
– If you are a home-owner, it may be a good idea to hold onto your property in the short-medium term rather than selling unless you have a specific reason to have liquid cashflow.
– As cash is cheaper, it may be wise to now action those renovations / home improvements you have been planning for, especially if it has the potential to increase your property value in the long-run.
– If you are looking to get into the market, now may be a good time as the official cash rate is at its lowest ever and the market has only just started to recover from a dip.
With all things equal, having liquid cashflow may not be king anymore in the coming months, especially as Australia braces itself for further rate cuts.