Since May 2022, the spotlight has been firmly fixed on the Reserve Bank of Australia (RBA) as it raised the country’s official interest rate to tame soaring inflation. Fortunately for homeowners and potential homebuyers, September saw the central bank leave the cash rate on hold, for the third consecutive month.
The decision was widely expected, coming on the heels of the Australian Bureau of Statistics (ABS) revealing a slowdown in annual inflation to 4.9% in July from the 5.4% recorded in June.
Even though this is still above the RBA’s 2-3% target range, it’s a noticeable drop from the 8.4% peak seen last December.
In the statement accompanying the cash rate decision, outgoing RBA governor Philip Lowe said recent economic indicators were consistent with the central bank’s forecast that inflation will return to the target range by late 2025.
“Inflation is coming down, the labour market remains strong and the economy is operating at a high level of capacity utilisation, although growth has slowed,” he said.
However, Dr Lowe warned that inflationary pressures persist, particularly within the services sector.
The rental market is witnessing a surge as well, with July seeing annual rent growth of 7.6%, up from 7.3% in June, reflecting the strong demand for properties amid extremely tight market conditions.
As such, more interest rate hikes aren’t completely off the table.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,” he said.
The road ahead for home loan interest rates
While Dr Lowe hasn’t ruled out further tightening, market commentators are increasingly leaning towards the idea that interest rates have peaked, with NAB the only major bank forecasting one last 25-basis-point increase later this year.
However, all four big banks agree that the RBA will reduce rates next year, given the prevailing economic indicators, with:
What does this mean for property prices?
National property prices have now risen for six months in a row, with CoreLogic’s home value index growing 0.8% in August as strong demand and limited supply continue to outweigh the impact of higher home loan interest rates.
Eleanor Creagh, senior economist at PropTrack, believes the RBA’s latest decision will further fuel the market’s recovery, due to the increased certainty around borrowing costs as well as the buoyant market conditions.
“Holding the cash rate steady in September is likely to maintain both buyer and seller confidence as the spring selling season begins, with home prices likely to continue lifting in the period ahead,” she said.
Demand for housing is currently being driven by the rapid recovery in overseas migration. This is estimated to have contributed 400,000 people to Australia’s population in 2022–23, with another 300,000 forecast for this fiscal year.
Typically, migrants rent on arrival – so this surge has placed pressure on the rental markets, particularly in Sydney and Melbourne. You can see the impact of this in the chart below, which shows how both city’s vacancy rates have plummeted since the international borders reopened.
Tight rental markets are, in turn, driving some migrants into homeownership sooner, contributing to the upward pressure on property prices.
What does this mean for homeowners?
The latest ABS lending data shows Australian homeowners are actively seeking better deals in response to climbing home loan interest rates, with a record-high $14.6 billion in owner-occupier home loans refinanced in July.
It’s important to note that even if the RBA hasn’t increased the cash rate since June, there’s usually a delay between cash rate adjustments and the home loan interest rates borrowers pay.
This means that even with a steady cash rate this month, your home loan’s interest rate could still increase.
As such, it’s a good idea to make sure you are still on a competitive deal for your circumstances, particularly if you’ve had your home loan for a while. An expert mortgage broker, like Shore Financial, can help with this.
Whether you want to buy a property or save money by refinancing your mortgage, Shore Financial can help you get a competitive home loan interest rate. To discuss your options, call us on 1300 416 700, email us on firstname.lastname@example.org or fill in this online form.