Month-In-Review-March-2015

Month in Review
March 2015
We would expect the reduction in the cash rate to
motivate and encourage some renters to leave the
rental market and enter the lower segment of the
market place as the gap continues to narrow between
renting and holding a mortgage.
Consequently, a gentle flow on effect to the middle
segment may occur as lower segment vendors look
to trade up their homes. We would expect little to no
effect to the top end segment as this market remains
oversupplied in the south west with a distinct lack of
prospective purchasers.
Overall, a reduction in the cash rate will have a
positive effect on the property market, particularly
the lower and middle segments. Nevertheless, the
word on the street is that it is likely the property
market in the south west for 2015 will be relatively
slow. This is on the back of the Perth metropolitan
market slowing significantly throughout the last two
quarters of 2014 as the Perth market historically has
a flow on effect to the south west market. Despite
this, the south west market to date has remained
relatively steady and a decrease in interest rates can
only be positive.
Esperance
The silence in this area created by the latest interest
rate cut has been deafening. There has been no
conversation in the community or evidence of
increased real estate activity as a result. Local agents
and finance brokers are reporting they are as quiet
as they have ever been.
A contributing factor in this area is our typically
lower average values compared to more populated
parts of the country which correspondingly means
lower average mortgages. The reduction of 25 basis
points has less impact on repayments than it would
in areas with higher mortgages. Where there may be
some upside is in the higher value part of this market
where some property may now come within reach
of a broader spread of purchasers. The caveat here
of course is that as soon as interest rates rise again
there could be the same number of people seeing
mortgage stress.
The reduction is timely for those with investment
properties in the area. A strong rental market on the
back of extensive capital works in this region has
tapered off as the projects have been completed.
Residential vacancy has increased slightly as a result
culminating in some reduction in weekly rental rates
over the preceding six to twelve months. A small
reduction in interest repayments could help cushion
the lower rental income for investors.
The hangover from the GFC is still being felt in the
broader market and the perception is prospective
purchasers are wary of getting caught by stagnant
or declining property values combined with the
possibility of interest rates going up in the medium
term. Hence, while there is still a regular sales
volume for a market of this size, purchasers remain
very cautious in their dealings.
It may well be that another interest rate cut following
close behind the most recent one may have a greater
impact. As there was a long time frame when rates
were on hold, the market in a sense got used to
the status quo. Family budgets were recalibrated
and a new norm was established. One interest rate
reduction has perhaps seen a modest increase
in monthly disposable income but not enough to
stimulate thoughts of purchasing a new property.
A second rate cut, sooner rather than later, may
give some impetus to activity in our local property
market.
Residential
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