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While a rate cut at the RBA’s next cash rate decision appears increasingly likely, an industry veteran has cautioned agents against banking on another real estate boom, even warning of a potential decrease in volume.
In a recent episode of Secrets of the Top 100 Agents, speaker, trainer and coach Josh Phegan discussed what an upcoming interest rate cut could mean for the real estate market, addressing some common myths of what a rate cut might mean for agents and vendors alike.
Ahead of the Reserve Bank of Australia’s upcoming cash rate decision on 18 February, Phegan explained that vendor expectations of a “rush of buyers” might slow market activity as they have unrealistic demand for their sales prices.
“They think that there’s going to be a tonne of extra people come Saturday, and then do you know what happens? Vendors also think, hey, I should pump my reserve by another $250,000,” he told REB editor Liam Garman.
“Confidence has returned. But what people don’t realise is that about a 0.5 per cent reduction in interest rates on a million dollar home loan in Australia is going to be equal to about $300 per month,” Phegan said.
“Divide that by four, it’s about $80 per week. I don’t really see that fundamentally, $80 a week is going to substantially see an extra, 5, 10 or 15 buyers turning up at the front door of most houses across Australia.”
The industry veteran quoted the decrease in listings throughout New Zealand ahead of a highly anticipated rate cut cycle as evidence that vendors and buyers may have unaligned expectations.
“The New Zealand Herald came out with a headline suggesting that there were eight interest rate decreases ahead,” Phegan said.
“When that actually happened, every vendor stopped wanting to reduce price, and every buyer said, ‘We’re going to wait for better value,’ and all of a sudden there was a collapse in volume.”
A reduction in rates may also result in increased savings, rather than an increase in personal expenditure, Phegan forecast.
Having made it through a rate hike cycle, property owners and buyers may use reduced rates as an opportunity to save and top up their home loan.
“Australians have spent all their savings and in addition to that, they’ve actually gone to the redraw and they’ve redrawn a bit of money on their home loan just to be able to survive throughout this particular period,” Phegan said.
With Westpac recently cutting its fixed-rate mortgages across its one- and two-year loan terms, data insights director at financial comparison site Canstar, Sally Tindall, said that a possible rate cut is “fast approaching, potentially as soon as next Tuesday”.
To prepare for this potential outcome, Phegan identified “market knowledge, experience and skill” as the resources every agent should hone to ensure they are delivering in case market sentiment drops.
“The first key thing is that people have got to have fundamentally amazing area knowledge. So school zones, conversations, golf courses, traffic, how did you get there? Did you catch a ferry, a bus or a train?,” Phegan said.
“And then the next conversation after that, is then moving to transactional knowledge. So in your state, territory or country, you’ve got to cross all the bases. Can a real estate agent actually buy a house they’ve just listed, and if so, what do they need to fill in and who needs to become aware?”
“The final layer is then actually understanding the skill layer. And that skill layer is how do I go in generating leads, how do I win listings? And then what do I do to actually make sure I can sell them?”
In order to adapt to the conditions that could come with a rate cut, Phegan advised that agents must fall back on the basic principles to ensure they are consistently, competitively positioned, regardless of the state of the market.
Listen to the full conversation with Josh Phegan and Liam Garman here.
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