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What the cash rate means for Surfers Paradise Property

By Andrew Bell

To no one's surprise, the Reserve Bank of Australia (RBA) concluded on October 6 that Australia's cash rate would remain at 2 per cent.

The most tangible and immediate effect of this is unrelentingly low interest rates on both borrowing and saving. People after real estate in Surfers Paradise would do well to refinance their home loan or take out a new one to make some great long term savings.

Why no change?

To see where the cash rate is likely to head, it's important to observe which areas of the economy is doing well and which is struggling. After all, the cash rate is the government's main tool of tweaking and guiding the economy.

"Growth has been somewhat below longer-term averages for some time," said RBA Governor Glenn Stevens as he cited multiple reasons for the board's cash rate decision in the October media release.

The main drivers to boosting economic growth here are consumption and investment. The low interest rates will drive spending and discourage saving. This means that businesses should be seeing a jump in commerce coming their way. A resulting effect of this should then be an increase in employment as companies hire more workers to support the influx of business.

Simultaneously, low interest rates will encourage more investments in current businesses, or to start up new ones. This will also play a part in giving the economy a lift.

All these factors give plenty of reason for the cash rate to remain low.

Is it working?

CommSec notes that movement in the economy is picking up as intended in a few notable areas. Car sales have seen record highs, as well as building approvals. People looking at Surfers Paradise property will benefit from the latter, as it'll mean a greater choice of housing to buy in the near future.

With businesses reaping more activity thanks to greater spending, employment and job listings have seen significant gains. The manufacturing and services sectors are also seeing expansion.

Other areas haven't experienced such positive effects.

Capital cities like Sydney and Melbourne have been seeing sharp growth in their housing markets thanks to low interest rates and a struggling supply. CoreLogic RP Data's quarterly review recorded Sydney's real estate dwelling values to have increased 18.4 per cent in the 12 months up to July.

With affordability rapidly dropping, especially in the Harbour City, the Australian Prudential Regulation Authority (APRA) has been working with the government to tighten investment lending. This is designed to curb investor demand that has been a major driver of rising Sydney property prices.

Where to next?

Australia should not expect a movement in the cash rate anytime soon. As Governor Stevens commented, "I think we are pretty content where we are right now."

As long as the national economy is still in need of momentum, the 2 per cent cash rate is unlikely to be rising.

The last cash rate cut in May was essential in such an economic environment to bring life to a less-than-stellar growth rate. Bill Evans from Westpac notes that growth was predicted to be at 2.75 to 3 per cent in 2015. More worryingly, had the Reserve Bank not cut its cash rate, "it would have been forced to forecast an even lower growth rate, presumably 2.25 per cent–2.5 per cent".

It could be a while until cash rates finally make a move in either direction.

Surfers Paradise property

If you want to put these low interest rates to good use and buy real estate in Surfers Paradise, give us a ring. Ray White Surfers Paradise will ensure you grab a property you don't simply like, but love. 

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