The 100 Point Dance

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We’re in unprecedented times yet at the same time, it’s all too familiar. The OCR dropped 0.75% down to 0.25% and banks immediately passed that through to the floating rate – although existing loans will have to wait until April 1 to get to see that. The fixed rates haven’t fallen quite so aggressively yet again we find ourselves in the same dance we always do at the next hundred point milestone.

No banks want to be the first mover to go below that next milestone – in this case, 3%. My reasoning for this is that it sets the new precedent. It informs the market that rates starting with a 2 are suddenly acceptable and that then becomes an expectation. So, they’ve moved ever so close to it with 3.05%. We’ve seen the same thing before – first at the 6% mark, then 5%, then 4% and so, here we are. ANZ were the first to go, and of course everyone matched. As yet no one has gone below 3, but they will. It’s a staring competition and someone has to blink.

So, my prediction is that within the next couple of weeks we’ll see a special of 2.99% (maybe even 2.89%) come from one of the main lenders. Others will follow and we’ll find ourselves in the new norm for a while until this market turns itself around – we’re all hoping that won’t take long. I’m not suggesting sit on your hands and wait, because fundamentally 3.05% is a great rate, but I do expect them to go a bit lower once someone’s eyes start to sting so much that they have to blink.

Rates will stay low for a long time to come. Well past the point of normality coming back into the market. At the moment confidence has been stripped from everyone and I have no doubt that that will impact the property market. It’s hard to sell a home when social distancing means no one wants to go to open homes or auction rooms. That being said, once all that goes away and confidence is restored (which it will be), the continued low rates will help get things back up and running. Don’t forget, the property market is largely fueled by supply and demand, and we simply do not have enough supply.