The Reserve Bank of Australia pleasantly surprised many commentators when it announced a 0.75% reduction in the Official Australian Cash rate, now down to 5.25%.
Most had expected a 0.5% reduction, particularly as Inflation remains an issue of concern for the Reserve Bank, and they had even considered leaving rates unchanged.
Thankfully common sense prevailed and this large cut now totals a overall rate reduction of 2.0% since 3rd September.
The continued uncertainty in global financial markets is at the heart of the matter, but a lot is a result of the RBA pushing rates up too high earlier in the year to combat rising inflation and better than expected growth in the Australian economy.
Inflation is expected to naturally decline as the effect of the slowing world economies and reducing oil prices begins to flow on in the coming months.
Home owners and property investors will welcome these interest rate reductions even though it is unlikely that the Banks will pass on the entire cut to their customers.
Until the Global Financial markets thaw completely from the recent scare, we can expect the major lenders to keep some of the savings to offset the higher cost of funds and greater risk currently being experienced internationally. Hopefully we can look forward to a bank reduction in the new year as normality returns to the world post the US Election.
The underlying strength of the Australian property market should react positively to this reduction, and start to quickly recover the temporary fall in average prices experienced during the recent turbulence.
According to the Australian Bureau of Statistics, the Weighted Average House price across Australia declined 1.8% in the September Quarter which was very much expected given the earlier interest rate rises and erosion of global confidence spilling into Australia.
This is also the quieter period of Migrant entry which has softened the market, however the season high point of incoming migrants is over the next few months, and this coincides with a weaker Australian dollar which boosts their spending power.
Supply growth has become stagnant and therefore you should not be surprised to see prices push higher in the coming three to six months as the reality of demand exceeded supply and soak up of the bargains takes place.
This will be further enhanced by the increase activity in the First Home Buyer market, who will be encouraged by the additional Grants on offer and lower interest rates.
Hold on tight, as we have a rough ride ahead in the short term, but normality is just around the corner.
Click here to view the RBA Media Release
