As we navigate through 2024, it has become increasingly clear that the current high interest rates are here to stay for an extended period. This sentiment is widely shared among economists and financial analysts who predict that interest rate cuts are unlikely in the near future. Factors such as persistent inflation, robust economic growth, and labour market resilience are contributing to this outlook.
Economists ruling out rate cuts
Recent inflation data and economic reports have led to a shift in expectations regarding interest rate cuts. For instance, the ABS March Consumer Price Index (CPI) report showed a 3.6% annual inflation rate, driven by rising costs in sectors like housing, transport, and household goods. These inflationary pressures have prompted major banks and analysts to revise their forecasts, now anticipating fewer or no rate cuts this year. The Reserve Bank of Australia (RBA) has similarly indicated that interest rates will remain high to combat inflation, with the next rate cut unlikely to happen until early 2025 as they work towards meeting the inflation target range of 2-3%.
Get snuggled in, we’re in for the long haul with interest rates
Impact on the property market
Stable interest rates have significant implications for the property market. With interest rates expected to remain high, the property market is likely to stabilise. This stability can help mitigate panic buying and reduce the fluctuations in hot buyer markets that typically drive-up property prices. As a result, the market may become more balanced, providing potential buyers with more opportunities and less competition-driven price inflation.
Moreover, investors are beginning to feel the strain of rising costs, leading some to sell their investment properties. This trend can pose challenges for renters, as they may need to relocate and face higher market rents for new accommodations. The reduction in rental properties due to investor sell-offs can exacerbate the pressure on the rental market, making it harder for renters to find affordable homes. This can create instability as the market adjusts to these changes, impacting both renters and potential buyers.
“Compared to historical averages, today’s rates are relatively moderate. Understanding this context can help potential buyers and investors recognise that the current rates are still within a reasonable range, providing a balanced environment for making property investments.”
Positive outlook for property buyers
For those looking to buy property or secure a mortgage, the current environment offers certain advantages. While high interest rates can seem daunting, they also mean less competition and more stable property prices. This can be an opportune time to enter the market, especially with the help of an experienced mortgage broker like Mint Equity.
Mortgage brokers can provide valuable insights and access to a range of loan products that they may not have considered via direct channels. They can help navigate the complexities of the mortgage process, particularly those buying a property in a Self Managed Super Fund, ensuring that buyers secure the best possible terms for their home and investment loans. By leveraging the expertise of a mortgage broker, buyers can better manage their financial commitments and make informed decisions.
Potential for future rate cuts and property price increases
When interest rates eventually start to come down, it is likely to drive property prices up again. Lower interest rates reduce borrowing costs, making it cheaper to finance property purchases. This typically increases demand in the housing market, leading to higher property prices. Therefore, buying now, while interest rates are stable and competition is lower, can be a strategic move for prospective homeowners and investors.
Historical perspective on interest rates
It's also worth noting that current interest rates, while higher than the unprecedented lows during the COVID-19 pandemic, are not exceptionally high from a historical perspective. The ultra-low rates seen during the pandemic were a response to extraordinary economic conditions and are unlikely to be seen again. Compared to historical averages, today's rates are relatively moderate. Understanding this context can help potential buyers and investors recognise that the current rates are still within a reasonable range, providing a balanced environment for making property investments.
The new normal
The current high interest rates are shaping up to be the new normal, driven by persistent inflation and economic factors. While this may present challenges, it also offers opportunities for property buyers and renters alike. By understanding the market dynamics and seeking professional guidance, individuals can navigate this environment effectively and take advantage of the stability it brings to the property market. Using the services of a knowledgeable mortgage broker can be particularly beneficial in securing favourable loan terms and making the most of the current conditions.
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