RBA Holds Rates: What It Means for the Property Market

The Reserve Bank of Australia’s decision to keep the cash rate on hold at 4.35% at its December board meeting was widely anticipated.

It means Australians with a variable mortgage who’ve been hit by 13 rate rises since the RBA started lifting rates from the emergency pandemic low of 0.1% can breathe a little easier in the lead-up to Christmas.

It had been estimated a 14th hike of 25 basis points would have added another $80 to monthly repayments on a typical $500,000 variable rate owner-occupied home loan. 

Mortgage holders may have been spared that, but on a half-a-million dollar loan, they are already paying $1200 extra a month since the central bank first began hiking rates in May last year.

That obviously made life a lot more difficult for a lot of home-owners, but after an initial dip, national home prices shrugged off RBA rate rises, recovered, and in November surpassed previous record highs, according to CoreLogic’s Home Value Index.  

So, what’s the outlook for property prices going forward?

The majority view from analysts who specialise in property seems to be that Australian home prices will keep going up, but price growth may moderate.

The optimists

In the last week of November, the Australian newspaper canvassed several experts and economists and found “the major banks and brokers broadly calling a moderate lift in nationwide house prices of around 4.5 per cent” in 2024.

The findings were similar to a survey of 10 experts by the Financial Review at the end of October.

Carlos Cacho, the chief economist at investment bank Jarden, was among the most bullish in the Fin survey, expecting home prices to grow around 6.5% nationally.

“The key drivers of this increase are expected to be continued limited listings, particularly of family homes, along with positive sentiment towards housing, given households’ expectations of RBA easing next year,” as reported by the Australian Financial Review.

Pointing to recent data from Neoval, which showed strong price growth of 9.1% this year across Australia, Ray White’s Chief Economist Nerida Conisbee says it’s unlikely the property market will slow down next year.

“Inflation continues to pull back and it is looking more likely that we are at or very close to peak interest rates.” 

“Housing supply continues to be a challenge.”

Co-founder & Director of Research at Freedom Property Investors, Lianna Pan, says there’s already a huge undersupply of housing in Australia and with strong population growth, that “is just going to build up.”

“We're actually seeing house price growth now, despite interest rate rises.” 

“So imagine what happens when interest rates stabilise and start to decline, let's say, by the end of 24 or 2025?”

Domain Group says it believes that long-term housing supply shortage, coupled with strong population growth from migration will see price growth in the capital cities of 6 to 8% in 2024, with the regions growing more slowly at 2 to 5%.

The pessimists

On the other side of the ledger is Louis Christopher, the Managing Director of SQM Property Research.

His “base case” for 2024 sees a small fall in home price values or very weak growth in our major cities of between -1 to +3 per cent next year. 

The prediction is based on prices only going up in two cities; Perth (+5% to +9%) and Brisbane (+4% to +8%).

“For much of the rest of Australia, the sharp deterioration of housing affordability, driven by ongoing interest rate rises which are now (in SQM’s opinion) at restrictive levels, plus an  anticipated slower economy will see a modest to moderate correction in dwelling prices take place in Sydney (-4% to 0%), Melbourne (-3% to +1%), Canberra (-8% to -4%) and Hobart (-7% to -3%)”, Mr Christopher says.

AMP’s chief economist Shane Oliver is another who is pessimistic about the outlook for the property market.

“Sydney and Melbourne house prices are decelerating faster than expected, so I suspect high interest rates are now starting to dominate,” he told the Financial Review. 

“I expect national prices to fall between 3 per cent and 5 per cent in the next 12 months.”

Final thoughts…

The main difference between these two perspectives appears to centre around the impact of 13 rate rises on household budgets and the flow-on effects on the property market. 

RBA Governor Michele Bullock recently dismissed as “political noise” many of the complaints about “mortgage stress”. 

“Despite that noise, households and businesses in Australia are actually in a pretty good position. Their balance sheets are pretty good,” she told a group of central bankers in Hong Kong.

While the RBA acknowledges some people are doing it tough, Michele Bullock has been keen to point to the substantial “buffers” that many households with a mortgage have, citing the additional $300 Billion in savings Australians socked away during the pandemic.

With the RBA cash rate at 4.35%, average mortgage holders are now paying retail rates of between 6.5% and 7.5% on their home loans.

But as ANZ Senior economist Adelaide Timbrell told ABC, “We know that the average mortgage rate for an outstanding mortgage of all banks is only 330 basis points higher for investors and 320 basis points higher for owner occupiers versus the beginning of the cycle, even though the cash rate is 425 basis points higher. So competition in the financial sector has limited the pass-through for those households.”

And in another sign that higher interest rates are perhaps having less of an effect on households with a mortgage than many people believed, SQM’s own “distressed listings” data for November has eased slightly.

The data, which looks at forced property sales - usually because of pressure from banks or lenders after people can’t make their mortgage repayments - shows that distressed listings nationally are down 16.5% on November last year, when the cash rate was only at 2.85%.