In the real estate market, economic and other local factors generally drive the market. These factors drive the market by influencing the supply and demand rate and therefore, the price of real estate in the market. The income of the people, the ease of accessing loans, availability of land, transportation, inflation, taxes and interest rate are factors that affect the real estate market, both locally and nationally. Interest and interest rates affect the rate of borrowing money for investment. With a low-interest rate, the mortgage is lower and people buy more property. With a high-interest rate, the reverse is seen.
On March 5th, 2019, the Reserve Bank of Australia (RBA) held a meeting and in this meeting decided to leave its official cash rate on hold. This decision was said to be made to support the falling Australian economy, reduce unemployment and lift the rate of inflation to 2-3%. The cash rate has remained unchanged since August 2016. This hold on interest is predicted to have a number of effects on real estate.
The repayment of the mortgage is becoming more difficult with the interest hold. The credit lords and lenders follow the international credit market and the US economy, which is a big influence on this market, has seen steady growth. Loans and credit are now more expensive and lenders have made credit requirement stiffer. Existing borrowers try to look for a less expensive or cheaper credit to swap to. Other citizens are unwilling to borrow money and therefore unable to buy real estate.
However, with the low-interest rate, the building becomes cheaper and more people can build. Because more people can build, construction jobs increase and by extension, more people are employed and this helps the economy.
Also, due to reduced availability of accessible credit and unwillingness to borrow money, the demand for real estate reduces and therefore the supply becomes more than the demand. This leads to a reduction in the price of real estate. There is a crash of prices in big cities like Sydney and Melbourne. Buyers that don’t need to borrow to buy real estate can purchase landed properties at a cheaper rate.
The fall in the price of real estate doesn’t entirely favor the homeowners as house rent reduces and the value of their asset reduces too. First-time homeowners especially feel this downturn in price.
Is the real estate market favored by the interest hold? It is hard to answer this question with a yes or a no because the favorable state is relative. Real estate investors can benefit from the interest hold by taking advantage of low prices and buying more real estate. Construction workers are also favored as there are more jobs available. Landlords are at a disadvantage and are not favored by the interest holder. Ultimately, the interest held by the Reserve Bank of Australia will be more of help than a disadvantage to the real estate market.
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