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What's next for interest rates and property prices?

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After a long stretch of confidence that interest rates could be coming down as early as mid-2024, inflation has stirred again and the path ahead seems less clear. 

Australian property prices have been rising comfortably despite the high-rate environment, but what could a higher-for-longer scenario mean for the rest of this year? 

Let's dive into the latest forecasts and understand the impacts for buyers and sellers around the country. 

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Rate cuts are still expected towards the end of 2024

Up until the end of the first quarter of this year, inflation was on a consistent downward trend, instilling confidence that the Reserve Bank of Australia (RBA) would start considering rate cuts. 

Some unexpectedly sticky inflation figures for the March quarter have changed the narrative, though, bringing some uncertainty around the RBA's next move and even stoking fears that there could be another rate hike. 

RBA Governor Michelle Bullock said at the central bank's June press conference that "we need a lot to go our way if we are going to bring inflation down to the 2-3 per cent target," suggesting we're not out of the inflation woods yet. 

But the big four banks still predict that the next change to the cash rate will be cuts rather than hikes, with three of them forecasting relief to come before the end of this year.

Three of the big four banks still think we'll see a rate cut inside of 2024. Source: RateCity

CBA, Westpac and NAB all agree we should see a 0.25 per cent cut in November 2024, bringing the cash rate down to 3.10 per cent over the course of 2025. 

ANZ is the outlier in thinking we'll have to wait until February for the downshift before rates settle at 3.60 per cent. 

How have interest rates affected property prices so far? 

Australian property has been on an incredible rollercoaster ride since the beginning of the pandemic in 2020, due in large part to the sharp ups and downs of interest rates. 

The economic instability brought on by Covid drove the RBA to cut rates to near-zero, spurring one of the most significant property booms in Australian history. 

National home prices skyrocketed nearly +30 per cent over 2021 according to CoreLogic data, with some cities and regions pushing well above +40 per cent. 

Then, in 2022, fast-rising inflation became a major concern and we saw the sharpest interest rate hiking cycle in decades put the brakes on Australia's housing momentum.

As the cash rate raced from 0.10 per cent to its current peak of 4.35 per cent, home prices fell in the majority of markets and there were fears of widespread forced sales tanking prices further. 

Australian property prices have ebbed and flowed wildly but are now settled into a more sustained growth pattern. Source: CoreLogic

2023 demonstrated the incredibly robust nature of Australian property. Despite rates continuing to rise, home values rallied and we've since seen prices recover to a new national all-time high in 2024. 

Karen Dellow, Senior Data Analyst at PropTrack, summarised that "The Australian housing market has weathered significant challenges over the past five years, showing remarkable resilience despite a global pandemic, multiple interest rate hikes, and high inflation."

How will interest rates dictate what comes next? 

While the economic outlook is still uncertain, Westpac Business Bank's Chief Economist Besa Deda reassured that the bad news is most likely having to wait longer for rate cuts rather than the expectation of an increase. 

"Our inflation forecasts for the upcoming June quarter report are below that of the RBA’s, leaving us comfortable with our view that the next move in the cash rate will be down and arrive in November," she said.  

"But we acknowledge there’s a greater risk of rate relief slipping into next year."

For now, property price growth is broadly defying the high interest rate environment. A key reason for this is a widespread undersupply of housing in the face of strong demand and a fast-growing population. 

Once rates do eventually get cut, it could serve to stimulate growth as borrowing becomes easier, but it may also introduce some growth-dampening factors. 

PropTrack Senior Economist Eleanor Creagh pointed out that the construction industry has been hit hard by high rates, curbing the number of new homes being built as the cost of materials and labour has soared. 

"As this premium narrows, cost increases stabilise further and interest rates begin to move lower, project feasibilities will improve precipitating the capacity to embark on new ventures. As a result, a recovery in new housing supply should be underway, particularly given the current strength in demand for housing," she said. 

"However, all these factors will take time to materialise in new approvals and subsequent new supply coming online, meaning upward pressure on rents and existing home prices will remain until new supply comes online."

So, while rate cuts may not be a clear-cut winner for rising prices, conditions still look strong for our property markets in the short term. 

Thinking of selling in 2024?

If you're still looking to get in on the action this year, it's important to be as prepared as possible in order to cut through the competition and achieve a standout result. 

Step 1: Understanding how your market is performing

Every market is different, and understanding your local market is fundamental to making the right selling decisions. Our guide to tracking market trends and data will help you to get a clear picture of how your market is performing and how that impacts you as a seller. 

Step 2: Know what your property might be worth

Getting a free home value estimate is a great way to set a foundation for your selling expectations and begin planning the path forward.

Step 3: Get a no-obligation market appraisal from a top real estate agent

Understand what your property could sell for in the current market by speaking to the top-performing agents in your suburb. Comparing top agents in your area will help you find the perfect partner for your selling journey and move towards a successful result.

Step 4: Finally, get your property listing-ready

Taking a thorough approach to preparing your home for sale is another critical step. From cleaning, decluttering, painting and performing other cosmetic renovations to home staging, photography and marketing, getting your property to sale-ready condition is a must.