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What’s in store for interest rates and property prices in 2024?

January 10, 2024

2023 was a rather unusual year for property markets across the country.

The year started just as 2022 ended, with prices heading south. However it only took two months for markets to show a rebound, around the same time positive news started to come from the RBA.

The rebound officially started in March. Fast forward 10 months and all the losses from 2022 and 2023, which were initially triggered by the RBA’s aggressive rate tightening cycle, were wiped out.

Price growth has however stabilised in recent months due to supply, or number of listings, increasing. What drove the turn around in prices was the low volume of listings. Despite sentiment to buy property at lower levels than the GFC, it was still outstripping supply. Most house sellers believed they didn’t want to sell in a down market, but those that were were getting stellar prices as competition for these houses was high.

2023 also saw a number of move in the interest rate. While not as many as 2022, it’s where we’ll start our review of 2023, and what’s forecast for 2024.

What happened to interest rates in 2023?

Having not pulled up roots for a decade, the RBA continued to be the most maligned acronym in Australia in 2023. 

There were eight interest rate hikes in 2022, of which some hikes in double doses (50 basis points rather than 25), which pushed the official cash rate to 3.1% by the end of the year.

Many economists and forecasters had predicted the RBA was all but at the end of their rate cycle, but consumer spending (inflation) continued to be persistent, so much so that at the first opportunity in 2023, the RBA acted swiftly, continuing to push rates up higher in Feb and March.

April brought a welcome sigh of relief for mortgage holders as the RBA held the cash rate at 3.6%, however more problematic inflation data had the RBA pushing rates up twice more in May and June before a prolonged four-month pause at 4.1%, during which the RBA Governor Philip Lowe, who back in 2021 said interest rates would stay low until at least 2024, departed after his seven-year term in the hot seat concluded. He was replaced by his deputy Michele Bullock.

Much like when there’s a change in government, the first month or so felt like a breath of fresh air. Bullock changed the way the statement was delivered which was welcome after seven years of having to pick out only one or two minor changes in the statement each month. It now feels like it’s a more open and honest assessment on what the RBA is thinking.

While holding interest rates steady for her first meeting in October, Bullock’s hand was forced a month later on Cup Day following surprising high inflation numbers. She held the rate in December as not enough economic data was released between November and December to change rates. The economic data released was however positive, but more on that later.

What’s expected to happen with interest rates in 2024?

Given they rarely provide an update as to their forecasts, we’ll start with Commonwealth Bank, the nation’s largest lender.

They’ve pencilled in cuts as early as September. They expect three cuts in 2024, which would mean September, November and December because the Reserve Bank will no longer be meeting in October. That will take the official cash rate down to 3.6% by the end of 2024, barring any surprises in the February rate announcement, which is the one economists aren’t 100% about whether it will be a hold or a hike.

CBA then expects a further three cuts in 2025, as inflation falls back into the RBA’s target range of between 2-3%. That would see the official cash rate drop to 3.1%, and if banks pass on those cuts to customers, it would take the average owner occupier variable interest rate to around the 5% mark (it’s now around 6.5%)

Westpac also expects the first RBA cut to be September 2024, but they predict just one more cut in 2024 to take the cash rate to 3.85% by the end of 2024. They also forecast a 3.1% cash rate by the end of 2025, with a rate cut in each quarter barring Q4.

ANZ expects the cash rate has hit a ceiling, and the first cut will be in the December quarter 2024, most likely in November. They then predict a cut in Q1 2025, but haven’t forecast any later than that.

NAB is the only one of the Big Four banks pencilling in a hike in February. They noted however the RBA is unlikely to be pushed by data like they were in Q3 which saw them hike rates in back to back months after four months of pausing.

“The impact of subsidies will see inflation moderate substantially in Q4, while goods prices will likely continue to aid the moderation in overall inflation. So while the true underlying pace of inflation will likely be a little higher than observed in the near term, inflation has continued to moderate and according to both our and the RBA’s forecasts will be approaching the target band at the end of 2024 (after peaking at a very high 7.8% in Q4 2022).”

As for the first cut, NAB expects it to come in late 2024, which would make 4.35% at the end of 2024. They then expect four cuts in 2025 to bring it down to 3.35%.

AMP Capital have gone bolder, with Shane Oliver suggesting the first cut could even come as early as the June quarter.

What about inflation forecasts?

Inflation is everything when it comes to interest rate movements. Sure the labour market, unemployment, and which direction house prices are headed all play into the minds of the RBA, ultimately the reason the official cash rate is being hiked is due to inflation.

Inflation, or Consumer Price Index (CPI), is the cost of goods and service. Inflation was heading up and up as Australians continue to spend and spend, fuelled by runaway house prices putting equity into home owners pockets, strong wage growth, and a tight labour market meaning more people were employed and could continue to pay higher prices for goods (food, furniture and household equipment and petrol) and services (rent, eating out and recreation and culture).

But the RBA’s line has always been “If the country gets entrenched in high inflation then it could be difficult to recover from). By hiking interest rates, their view is that inflation will be tamed as homeowners start tightening their belts due to higher repayments on their mortgages, and it’s been working.

Inflation hit a record high of 7.8% in December 2022. The inflation data reflects how much the price has risen in the 12 months prior. So since December 2021 prices of goods and services have jumped 7.8%. Since then inflation has been tracking downwards from historic highs, but the RBA has long had a target of hitting an inflation figure of between two to three per cent by mid-2025.

Quarterly inflation data released in late October saw CPI rise 1.2% over the quarter, higher than forecasted 1.1% by , which triggered the November rate hike. There’s the less weighted monthly data release by the ABS (less important because it doesn’t cover every good or service the quarterly information does), but that showed significantly lower inflation than forecast which was welcome news just before Christmas. The next quarterly inflation release will be Jan 31, a release which economists say will dictate whether there will be a February rate hike or not.

The RBA expects inflation will slow to 3.3% by the end of 2024 and 2.9% by the end of 2025.

NAB forecast inflation to be a touch lower than the RBA’s forecast by the end of 2024 at 3.25%. They believe by the end of 2025 it will sit at 2.8%.

ANZ forecast the next quarterly release to see inflation slow to 4.1%, down from 4.9% in October. They expect inflation to be stickier than the RBA and NAB forecast. Their view is it will still be at 3.7% by the end of 2024 and 2.9% by the end of 2025.

Westpac only forecast to the end of 2024, when they think inflation will be running at an annual pace of 3.5%.

What happened to house prices in 2023?

Despite the start of 2023 seeing declines roll on from 2022, prices surged 8.1 per cent nationally across houses and units in 2023, according to CoreLogic’s national Home Value Index. It was a significant turnaround from the 4.9 per cent drop seen in 2022. Every month since March 2023, the Index has shown growth.

Brisbane was the market leader on the east coast across both houses and units, only pipped by Perth nationally.

Brisbane house prices grew 13.3% to a new median high of $875,000. It’s now approaching Melbourne’s median house price of $948,000. Brisbane unit prices fared just as well as houses with 12.2% growth taking the median Brisbane unit value to a record high $561,000, with that median now approaching Canberra ($591,000) and Melbourne (610,000).

What are the price forecasts for 2024?

Everything is looking rosy for 2024 for both interest rates and property prices. With the expectation the RBA has finished hikes, expected to be all but confirmed on Jan 31 when the quarterly inflation data is released, more buyers will flood back into the market, with a view that, as long as they opt for a variable home loan, they’ll be paying less interest on the home by the end of 2024, and even less in 2025.

The Big Four are all expecting Brisbane to be the best performing property market in 2024. Only Westpac says Perth will pip its growth this year.

ANZ and Westpac both have the most bullish view on the national property market in 2024, forecasting capitals to rise by six per cent. Both expect Brisbane and Perth to be the best performing markets, with prices rising closer to 10 per cent than six per cent. 

NAB too expects Brisbane to be the best performing market, with 6.5 per cent gains predicted, higher than their 5.4 per cent average across all capitals. CBA say Brisbane’s market will grow by six per cent, followed by Melbourne and Perth.

To find out more on new developments across Brisbane, from Ipswich and Logan to the Moreton Bay Region and to the Gold Coast’s Coomera area, click here.

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