Interest rate cut, property market downturn provides backdrop to ACT budget

The Reserve Bank of Australia is widely expected to announce an interest rate cut on Tuesday, the first such move since August 2016.

Forecasting the move last month, Reserve Bank governor Philip Lowe said without a cut to the official cash rate, which is already at a record low 1.5 per cent, unemployment would increase, inflation would remain low and wage growth stagnant.

An interest rate cut is among the factors expected to contribute to an upswing in the housing market, along with a loosening in bank lending rules and the Commonwealth's new first-home buyer assistance scheme.

The ACT government is hoping any bounce extends to Canberra, having pinned its hopes of delivering a combined $300 million in surpluses over the next four years on a property market rebound.

Canberra house prices dropped two per cent in the year to March, the first annual fall in more than six years.

House prices dipped 0.3 per cent in May, while unit values rose by 0.1 per cent, according to figures released by real estate analytics firm Core Logic on Monday. Canberra's auction clearance rates slumped to 43 per cent last week, down from an average of 65 per cent last year.

Core Logic's head of research, Tim Lawless, said while Canberra's housing market had "flatlined", it had weathered the worst of a national downturn which saw prices plummet in Sydney and Melbourne.

House prices in those two markets continue to drop, although the rate of decline has slowed, according to Core Logic's latest figures.

Mr Lawless said the strength of Canberra's economy, which is underpinned by Australia's lowest unemployment rate, had enabled it to overcome the market conditions which spurred the downturn.

He expected the housing market in Canberra and interstate would "stabilise" in the wake of the interest rate cut and the Coalition's surprise election win. The prospect of a Labor win had created uncertainty in the property market because of its proposed changes to negative gearing and capital gains tax.

Mr Lawless doubted there would be a major surge in the market, saying governments and regulators would be wary not to trigger another housing boom.

Canberra's biggest developer, Geocon, has reported a surge in activity since the federal election. The construction giant has sold 80 apartments since the election, including 52 in the week after the May 18 poll. Inquiries from prospective buyers are up 103 per cent.

Geocon managing director Nick Georgalis said he believed that the election result and forecast interest rate cut was encouraging more people to buy into the market.

The 0.25 percentage point interest rate cut expected on Tuesday would save someone with a $400,000, 30-year-mortgage about $67 a month in repayments - provided it is passed on in full.

Treasurer Josh Frydenberg said he expected the banks would pass on the interest rate cut in full, although economists have warned that is far from guaranteed.

Property Council ACT executive director Adina Cirson said the interest rate cut would be welcomed, but noted the move was a sign the national economy was struggling.

Ms Cirson said the fact Canberra house prices had increased in the past quarter, albeit very modestly, was cause for optimism, particularly amid the backdrop of larger falls in other cities.

Canberra Business Chamber chief executive Michael Schaper said an interest rate cut could spark an increase in consumer confidence, leading to more spending.