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    Rate cut talk could encourage buyersBy Stephen Johnson
    April 04, 2008 03:10pm
    Article from: AAPFont size: + -
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    THE prospect of interest rate cuts next year could be encouraging potential home buyers to buy now before more people rush into the market.

    The prediction of the first rate cuts since 2001 comes as house prices are forecast to climb by up to 40 per cent over the next five years.

    The Reserve Bank of Australia (RBA), which left interest rates on hold this week, has indicated it was almost done with raising rates.

    Its accompanying monetary policy statement said inflationary pressures would ease as higher interest rates and increased borrowing costs slowed down demand.

    Economists interpreted the statement to mean that even if March quarter inflation was high, a possible May interest rate rise would be the last before rates were cut in 2009.

    Mortgage and Finance Association of Australia chief executive Phil Naylor said that for the majority of potential home buyers, the prospect of rate cuts next year would make them more inclined to borrow now rather than wait for rates to fall.

    "If they can see conditions whereby rates are more likely to fall, they'll get into the market now,'' he said.

    "The possibility is they may see better prices six months to a year later when more people move into the market and house prices move up.''

    Economic forecaster BIS Shrapnel has predicted that residential property prices would rise by 40 per cent over the next five years as housing construction has failed to keep pace with demand.

    Housing Industry Association chief economist Harley Dale said that while rate cuts were possible in 2009, it was still too early to expect people to rush into the housing market as banks continued to increase their lending rates.

    "I would tend to think at the moment that there's likely to be little material short-term boost to confidence to see people weigh in as a result of some expectation rates may be cut down next year,'' he said.

    "You're still seeing financial institutions bumping up mortgage rates. To the average punter, it's uncertain.''

    Lehman Brothers chief economist Stephen Roberts said the RBA was likely to cut rates three times in 2009, which would take the cash rate back to 6.5 per cent for the first time since early November.

    Adding to speculation of possible rate cuts was RBA data showing that private sector borrowing in February had posted its lowest monthly growth rate since October 2002.

    Interest rates were last eased in December 2001.

    In that year rates were eased six times, but since May 2002 they have climbed 12 successive times.

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