Interest rates may have peaked: what it means for property

A growing number of economists say the next move on interest rates will be down after the Reserve Bank of Australia kept interest rates unchanged for a second straight month.

The predictions come as buyers and sellers gear up for the traditionally busy spring selling season, with a renewed sense of certainty expected to support activity – and prices – in the months ahead.

At its August meeting, the RBA held the cash rate steady at 4.1%, where it has sat since June, marking the longest pause since rates began rising from a record low of 0.1% in May 2022.

In announcing the decision, RBA governor Philip Lowe didn’t rule out further increases but said it would depend on how inflation and the economy evolves.

The wait-and-see approach prompted several economists to update their forecasts, with CBA and Westpac joining ANZ and AMP on the view that interest rates have now peaked.

Westpac chief economist Bill Evans says the next challenge for the outlook should now be the timing of the first rate cut.

“The next move is now likely to be the first cut in the cycle which is forecast for the September quarter of 2024,” Mr Evans said.

CBA expects the first move will come much sooner, anticipating a rate cut in each quarter from March 2024 to take the cash rate back to 3.1% by the end of 2024.

“We expect the economy to have slowed, inflation to have moved down closer to target and the labour market to be softening to prompt the start of the easing cycle,” CBA senior economist Belinda Allen said.

“This would imply a 9 month gap between the last rate hike, i.e. June 2023, and the first rate cut under the new RBA Board meeting timetable.”

Here’s where some leading economists see interest rates moving over the coming year:

While the consensus is that interest rates have peaked, NAB expects the RBA will move once more to ensure inflation remains on track to return to its 2-3% target range by mid-2025.

At 6%, inflation was still running at more than double the RBA’s target over the year to the June quarter.

“Following the RBA’s decision to keep rates on hold at 4.1% for a second consecutive month, we now see only one more increase this cycle, taking the cash rate target to a peak of 4.35%, previously 4.6%,” NAB chief economist Alan Oster said.

“With rates now expected to peak slightly lower than our previous forecasts, we have pushed back our expectation for the beginning of rate cuts to August 2024.”

Eyes on supply this spring selling season

After falling throughout the second half of 2022, property prices have bounced back this year with the latest PropTrack Home Price Index rising for a seventh consecutive month in July.

National home prices are now 1.36% higher than to a year ago and just 1.44% below the March 2022 peak.

PropTrack senior economist Eleanor Creagh says with interest rates widely tipped to have peaked, confidence is returning to the property market – setting the stage for a strong spring selling season.

“Buyers may be comforted by the likely end of the tightening cycle, greater certainty around future borrowing costs, and continued low unemployment,” Ms Creagh said.

“Seven months of price rises that have gathered traction across markets could also be drawing buyers off the sidelines.”

A key driver of property prices this year has been a shortage of supply, as uncertainty over interest rates and the economy kept sellers on the sidelines.

Ms Creagh says that could drive prices even higher if more sellers don’t bring their properties to market.

“Although total stock on market has increased slightly, the flow of new listings has remained soft in recent months, leading to increased buyer competition and solid selling conditions,” she said.

“If the flow of new listings picks up, which is likely, as we head into spring, the pace at which prices have grown this year may slow.

“That is unless the peak in interest rates sees homebuying demand lifting to meet the anticipated uplift in new stock coming to market.”

Speaking on realestate.com.au’s real Talk podcast, Charlotte Pascoe, chief executive of real estate agency Stockdale & Leggo, noted a shortage of rental properties was another reason sellers are holding off.

“That is a really big issue because people are scared, if I sell my home, that’s great, at least then I know what I’ve got to spend, but what if I can’t find a rental property?”

“So I think people are sitting in this really uncertain period of time,” she said.

But she said those that do list will likely be rewarded.

“If you’re looking at selling a home, now is a brilliant time to do it because we have a shortage of supply. So now is actually the time when we know what you’re going to achieve.”

Source: https://www.realestate.com.au/news/interest-rates-may-have-peaked-what-it-means-for-property/

Article by: Sarah Dowling, Property News Editor

First published 2 Aug 2023, 4:38pm