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December 12, 2023 by ash

What will be the interest rate outlook in 2024?

A pivotal year for home owners’ finances, with the RBA hoping to cut the official cash rate in 2024. Four big banks suggest differing interest rate expectations; 2024 represents a pivotal year for home owners’ finances.

Having witnessed rising inflation and cost of living pressures in 2023, will 2024 bring some relief to mortgage holders?

If you have a variable interest rate, or if you have hit the mortgage cliff, you felt the pinch during 2023 with five rate rises.

Hopefully, 2024 will bring pleasant surprises, a reduction in interest rates towards the back end of the year, and inflation can be kept under control.

In 2024, will property prices crash?

The latest ANZ housing report predicts a modest rise of 5 percent in capital city property prices in late 2024. 

However, you should take this advice with a grain of salt since the Reserve Bank of Australia (RBA) predicts a national house price decline of 11% by 2023.

In many markets across the country, prices actually increased during the pandemic, contrary to the Commonwealth Bank’s predictions.

There is no crystal ball, but we do know what to look for to predict a price crash and how to protect our investment properties.

There would need to be a storm of the following for property prices to crash:

  • Rates are rising, along with
  • Unemployment is rising, along with
  • Living costs are rising, along with
  • There has been a downturn in the economy, along with
  • There has been a drop in demand for housing.

The unemployment rate is one factor keeping our property market strong.

The unemployment rate is near its lowest level since the mid-1970s, at 3.7%.

There is actually a shortage of workers in many industries at the moment. Unemployment levels that are safe are around 4.5-5 percent, and we would start to be concerned if they exceeded 6 percent.

An economic crash would occur if unemployment exceeds 6 percent or even approaches 7 percent.

The demand for housing is so high right now that builders are unable to meet it due to rising costs and a lack of available land in popular areas.

Is there going to be a rate cut in 2024?

According to the big four banks, interest rates are likely to remain stable for most of 2024 before a potential rate cut between August and December.

By May 2025, the Commonwealth Bank predicts rates will fall to 2.85 percent.

We may have to wait until December 2025 before we see rates drop to 2.85 percent, according to Westpac.

There is a downward trend in risky lending

According to NAB, we will see a rate cut sooner, in August 2024, but the rate will remain about 3% by March 2025.

Rates will remain higher, at 3.6% by June 2025, according to ANZ, which predicts the next rate cut will come next Christmas.

Prices are not being held back by rates

We are keeping a close eye on the RBA, the economy, and how it is affecting our property market.

For the first half of 2024, interest rates are expected to stabilize the economy, but they may still rise if inflation continues to rise.

In 2024, many mortgage holders will have moved from low fixed rates to high variable rates, which will have a greater impact on the wider economy.

The next rate cut is likely to come in September or October next year.

The property market has shown resilience and interest rate increases haven’t discouraged first home buyers or investors as much as they have impacted their serviceability and made them rethink their budgets.

As inflation is controlled, we will see even more investors entering the market as they increase their confidence in their investment decisions, which should lead to home price increases.