- A 25 basis point cash rate cut was priced in by markets at the end of December
- Previously, rate cuts were predicted to be in late 2024.
- Interest rate cuts may lead to more house price growth.
According to previous reports, experts broadly predicted interest rate cuts towards the end of this year or early 2025, with at least one more rate rise likely early doors.
A cut was largely expected as various factors as economic challenges and risks died down.
Cash rate predicted to fall later in the year
Experts, including Loan Market Ellenbrook’s Brett Richardson, have previously told The Property Tribune that rates are more likely to fall in December than earlier in the year.
“The increase in the cash rate from 3.10% to 4.35% in 2023 posed challenges for homeowners and aspiring first-home buyers. As we enter 2024, economists from the Big Four suggest the cash rate is nearing its peak,” Richardson previously told The Property Tribune.
Other forecasts for a late 2024 cash rate decline noted that the interest rate fall may eventuate as expected when economic risks finally subside.
Markets pricing in a 25 basis point cut
Today’s CoreLogic Hedonic Home Value Index report noted that interest rates will remain a key influencer of this year’s housing market trends.
While another cash rate hike cannot be ruled out, the reported that the inflation trends, weakening economic conditions amid low consumption, and a loosening labour market were factors likely to suggest another rate hike is unlikely.
“At the end of December, financial markets were fully pricing in a 25 basis point rate cut by June 2024,” noted the report.
Ray White Group chief economist, Nerida Conisbee, also observed the trend.
“The US Federal Reserve recently stated that they were likely to cut interest rates three times in 2024,” she said.
“While the Reserve Bank of Australia is not yet so bullish on cuts, markets are now pricing in a rate cut in the first quarter of 2024.
“This outlook is substantially different than even a few weeks ago and will increase house prices further.”
The CoreLogic report said a fall in the cash rate will likely lead to rising consumer sentiment and a more positive trend in housing activity and values through the second half of the year.
It was noted, however, that easing in macroprudential policy settings is not a given.
Will borrowing get easier this year?
“In early December, APRA reiterated that the three percentage point serviceability buffer which is applied to loan serviceability assessments ‘remains prudent’ and has been ‘effective in improving the quality of lending’,” said the report.
Recalling APRA data to September 2023, the report found that forms of lending that were riskier were all at historically low levels. Examples included high loan-to-value ration loans, high debt-to-income ratio loans, or high loan-to-income ratio loans.
“Stoking a housing value rebound on the back of lower interest rates is arguably an outcome that policy makers would like to avoid,” said CoreLogic research director, Tim Lawless.
“Even if interest rates do come down later this year, credit availability is likely to remain relatively tight.”
