- Cash rate remains at 4.35%.
- A rate cut remains widely predicted for the end of this year.
- If the rates come down, home buying is expected to pick up, with Australian house prices likely to see some 10% growth, or more.
The Reserve Bank of Australia (RBA) has kept the official cash rate at 4.35% at its latest meeting on 19 March 2024.
“Recent information suggests that inflation continues to moderate, in line with the RBA’s latest forecasts,” the RBA Board said in a statement.
The statement also noted that “Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy.”
Experts believe Australia’s interest rates have peaked
Many experts share the belief that the official cash rate has peaked.
PropTrack Senior Economist, Eleanor Creagh observed, “After lifting interest rates 25 basis points in November 2023, the Reserve Bank hit pause on its rate hiking cycle, holding the cash rate steady in December, February, and again, at 4.35%.”
“This sustained pause reflects the continued easing of inflation pressures while the economy, businesses, and consumers are adjusting to the full impact of significant interest rate tightening delivered since May 2022.”
Eleanor Creagh, PropTrack
While rate cuts are broadly expected towards the end of 2024, something Rethink Investing Senior Acquisitions Specialist (National), Robert Martin, agrees with, what happens in the interim could be different.
“The RBA didn’t indicate that rates are necessarily coming down.”
“By putting rates on hold, yes, there is some relief for mortgagees, but it leaves the door open to a potential rate rise.”
“But to go full circle, given the way we’re headed and with the retail market feeling a very strong pinch, I’m still predicting that we’ll see a rate cut in the back end of this year, with the absolute latest in maybe February next year.”
Australian house prices continue to soar
Prices for Australian real estate have been resilient in the face of high interest rates, and are continuing to move up.
“National home price growth slowed at the end of 2023, however, it has accelerated with summer drawing to a close,” said Creagh.
“The PropTrack Home Price Index indicated national home prices hit a new record high in February, lifting 0.45%, the largest monthly rise since October 2023. That brings prices up 0.82% so far this year and up 6.15% compared to a year ago, the fastest annual rise since July 2022.
“This year has kicked off busily with more homes hitting the market than usual in Sydney and Melbourne, giving buyers more choice. Demand has kept up with that increase, with many anticipating that interest rates will fall in in the second half of 2024, likely providing a positive tailwind for activity.
“The decision by the Reserve Bank to hold the cash rate steady in March will maintain both buyer and seller confidence.
“Looking ahead, the next move for interest rates is likely to be down.
“Despite a weaker outlook for the economy, the positive tailwinds for housing demand and a slowdown in the completion of new homes are likely to offset the impact of reduced affordability and a slowing economy. As a result, prices are expected to lift further in the months ahead, particularly while the expectation remains that interest rates will move lower in late 2024.”
LJ Hooker Group’s Head of Research, Mathew Tiller, said demand in the more affordable markets is driving activity and growth in most capitals and regions.
“Everyone is looking for affordability at the moment and this is boosting the middle to lower priced end of the market,” said Matthew.
“The rental market remains tight and that is motivating some renters, who have saved a deposit, to make the transition to home ownership. This price point also encompasses first home buyers, investors and even downsizers so there is solid competition in this segment.”
Could home buying pick up as confidence rises?
CoreLogic’s research director, Tim Lawless, said the decision to hold rates, along with with lower inflation, and the mounting expectations that the cash rate will come down later this year, should help to boost confidence.
“Historically we have seen a close relationship between consumer sentiment and the volume of home sales,” said Tim.
“Following the 6.2% rise in the February consumer sentiment reading from Westpac and the Melbourne Institute, a further lift in confidence could be accompanied by a rise in home purchasing. This could add to housing demand that has already remained quite resilient despite the higher interest rate environment and cost of living pressures.”
What will happen to Australian property prices when the cash rate is cut?
Robert told The Property Tribune that house prices will rise following the rate cut, and the rate cut timing may catch some off guard.
“I think people will get a bit of a surprise because a rate cut will come sooner than most expect.”
Markets will move ahead again, with the Australian house price increases not restricted to the latest price growth stars of Brisbane and Perth, however:
“I don’t think we’ll see record growth like we saw through Covid, but I still think we will see significant 10% plus growth through all the major cities and even regional cities because one thing that Covid has shown us is that we can work from home now.”
